Consider a pair of homeowners. Each homeowner enjoys living in a neighborhood with well-maintained yards. They...

Transcribed Image Text:

Consider a pair of homeowners. Each homeowner enjoys living in a neighborhood with well-maintained yards. They acquire utility equal to 6g, from their own yard and 2.g from their neighbor's yard, where gi represents one hour of yard work per month. Additionally, they face a cost of 1 per unit of yard work. Homeowners simultaneously choose the level of yard work that they will complete. (a) How much yard work should each homeowner complete to maximize total utility? (b) Write the best response function for each homeowner, based on their neighbor's level of yard work. Does it vary with their neighbor's choice? (c) What is the unique Nash Equilibrium for this game? (d) Let g* be the level of yard work completed by each homeowner that maximizes total utility. Assume that both homeowners could agree to form a homeowner's association, which would impose a fine equivalent to -100 utility to any homeowner that does not perform at least g* hours of yard work. Would the homeowners be willing to accept this agreement? Would it increase total utility? Consider a pair of homeowners. Each homeowner enjoys living in a neighborhood with well-maintained yards. They acquire utility equal to 6g, from their own yard and 2.g from their neighbor's yard, where gi represents one hour of yard work per month. Additionally, they face a cost of 1 per unit of yard work. Homeowners simultaneously choose the level of yard work that they will complete. (a) How much yard work should each homeowner complete to maximize total utility? (b) Write the best response function for each homeowner, based on their neighbor's level of yard work. Does it vary with their neighbor's choice? (c) What is the unique Nash Equilibrium for this game? (d) Let g* be the level of yard work completed by each homeowner that maximizes total utility. Assume that both homeowners could agree to form a homeowner's association, which would impose a fine equivalent to -100 utility to any homeowner that does not perform at least g* hours of yard work. Would the homeowners be willing to accept this agreement? Would it increase total utility?

Answer rating: 100% (QA)

Lets analyze each part of the problem a To maximize total utility each homeowner should consider bot... View the full answer