A and B are a couple and they want to go into a concert. A comes from Bonn and loves the music of Ludwig van Beethoven. B comes from Salzburg and loves the music of Wolfgang Amadeus Mozart. There are two concerts in town: one with the music of Beethoven and one with the music of Mozart. Both (A and B) prefer to go to a concert together. If both go to a concert of Beethoven, A has a pay-off of 4 and B has a pay-off of 2. If both go to a concert of Mozart, B has a pay-off of 4 and A has a pay-off of 2. If A goes to a concert of Mozart and B to a concert of Beethoven, they are both miserable and get a pay-off of 0. But, if B goes to a concert of Mozart and A to a concert of Beethoven, they are both a little better off with a pay-off of 1. Both A and B have to make a simultaneous decision and cannot communicate prior to the decision. (a) Construct the pay-off matrix for this game. (b) Identify the Nash equilibrium or equilibria of the game. (c) Which off the allocations are pareto-efficient. Explain briefly why.

A and B are a couple and they want to go into a concert. A comes from Bonn and loves the music of Ludwig van Beethoven. B comes from Salzburg and loves the music of Wolfgang Amadeus Mozart. There are two concerts in town: one with the music of Beethoven and one with the music of Mozart. Both (A and B) prefer to go to a concert together. If both go to a concert of Beethoven, A has a pay-off of 4 and B has a pay-off of 2. If both go to a concert of Mozart, B has a pay-off of 4 and A has a pay-off of 2. If A goes to a concert of Mozart and B to a concert of Beethoven, they are both miserable and get a pay-off of 0. But, if B goes to a concert of Mozart and A to a concert of Beethoven, they are both a little better off with a pay-off of 1. Both A and B have to make a simultaneous decision and cannot communicate prior to the decision. (a) Construct the pay-off matrix for this game. (b) Identify the Nash equilibrium or equilibria of the game. (c) Which off the allocations are pareto-efficient. Explain briefly why.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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