Figure 8.1 Charla and Mirna are the only two inhabitants of an isolated town in the Arctic Circle. Each uses an old coal-fired heating system to keep their homes warm, but those heating systems generate a great deal of pollution. Installing a pollution-control device on such a system costs $700, but Charla and Mirna would each save $490 apiece on their health care expenses for each device installed. The payoff matrix above shows the possible gains and losses, or incentives, for both Charla and Mirna.
-Refer to Figure 8.1. If each player cooperated with one another rather than playing their dominant strategies, the economic pie would grow by

Question

Figure 8.1  Charla and Mirna are the only two inhabitants of an isolated town in the Arctic Circle. Each uses an old coal-fired heating system to keep their homes warm, but those heating systems generate a great deal of pollution. Installing a pollution-control device on such a system costs $700, but Charla and Mirna would each save $490 apiece on their health care expenses for each device installed. The payoff matrix above shows the possible gains and losses, or incentives, for both Charla and Mirna.
-Refer to Figure 8.1. If each player cooperated with one another rather than playing their dominant strategies, the economic pie would grow by

Quizplus · Accepted Answer

If each player cooperated rather than playing their dominant strategies, the economic pie would grow by $560, as cooperation typically leads to a more optimal outcome for all parties involved, increasing the total economic benefit.

Figure 81 Charla and Mirna Are the Only Two Inhabitants