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 Charla and Mirna agree to pay each other $350 to install the pollution-control device on their heating systems, the payoffs in the upper-right and lower-left cells in the payoff matrix would become

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 Charla and Mirna agree to pay each other $350 to install the pollution-control device on their heating systems, the payoffs in the upper-right and lower-left cells in the payoff matrix would become

Quizplus · Accepted Answer

The original payoffs in those cells likely reflect the cost of installing the pollution-control device minus the benefits of reduced pollution. By agreeing to pay each other $350, they effectively share the cost, altering the net payoff to reflect this mutual support, which would adjust the payoffs to a more moderate figure, likely closer to +140, +140, assuming the original payoffs were negative due to the cost burden outweighing individual benefits without shared financial support.

Figure 81 Charla and Mirna Are the Only Two Inhabitants