Alexandria and Bob can each choose to Work or Not Work on a task. Each person’s output is £80 for Not Work, and £160 for Work. The cost of effort is £0 for Not Work and £70 for Work. The total output is shared equally between the two. For example, if Alexandria puts in her effort but Bob does not, then the total output is £80 + £160 = £240, and her net income is £240/2 - £70 = £50 while Bob’s net income is £240/2 = £120. Assume both workers are completely selfish. Based on this information, read the following statements and select the correct one.

Question

Answer

In the situation where both Alexandria and Bob put in effort, Alexandria does not have an incentive to deviate.

Answer

If Bob chooses to Not Work, he will definitely end up with a net income of £120.

Answer

In the equilibrium outcome, they both end up with a net income of £80 each.

Answer

The equilibrium outcome is the socially optimal outcome.

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Alexandria and Bob can each choose to Work or Not Work on a task. Each person’s ...

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