Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 8, Problem 7DQ
To determine
Impact of framing effect in fund raising.
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Topic B Problem: Imagine you have two competing athletes who have the option to use an illegal and/or dangerous drug to enhance their performance (i.e., dope). If neither athlete dopes, then neither gains an advantage. If only one dopes, then that athlete gains a massive advantage over their competitor, reduced by the medical and legal risks of doping. However, if both athletes dope, the advantages cancel out, and only the risks remain, putting them both in a worse position than if neither had been doping.
What class concept best describes this situation? Using this class concept, what outcome do we expect from these two athletes? Are there any factors that could change the outcome predicted by this course concept?
Suppose Ishmael and Santiago are the only two fishermen who fish in Lake Hardin. Each must choose between fishing for 20 hours per week or for 40 hours per week. If both choose to fish for 20 hours per week, then each can earn a profit of $3,000 per week. If both choose to fish for 40 hours per week, then each can earn a profit of $2,000 per week. If Santiago fishes for 40 hours per week, and Ishmael fishes for 20 hours per week, then Santiago can earn a profit of $4,000 per week, and Ishmael can earn a profit of $1,000 per week. If Ishmael fishes for 40 hours per week, and Santiago fishes for 20 hours per week, then Ishmael can earn a profit of $4,000 per week, and Santiago can earn a profit of $1,000 per week.
a. Construct the weekly payoff matrix for this situation.
Ishmael
20 Hours
40 Hours
Santiago
20 Hours
$ for Santiago$ for Ishmael
$ for Santiago$ for Ishmael
40 Hours
$ for Santiago$ for Ishmael
$ for Santiago$ for Ishmael
b. What is the equilibrium outcome…
Kyoko and Rina are considering contributing toward the creation of a public park. Each can choose whether to contribute $300 to the public park or to
keep that $300 for a weekend getaway.
Since a public park is a public good, both Kyoko and Rina will benefit from any contributions made by the other person. Specifically, every dollar that
either one of them contributes will bring each of them $0.90 of benefit. For example, if both Kyoko and Rina choose to contribute, then a total of $600
would be contributed to the public park. So, Kyoko and Rina would each receive $540 of benefit from the public park, and their combined benefit
would be $1,080. This is shown in the upper left cell of the first table.
Since a weekend getaway is a private good, if Kyoko chooses to spend $300 on a weekend getaway, Kyoko would get $300 of benefit from the
weekend getaway and Rina wouldn't receive any benefit from Kyoko's choice. If Kyoko still spends $300 on a weekend getaway and Rina chooses to
contribute…
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