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 dominant strategy for the players would be for Charla to play ________ and for Mirna to play ________.
A) Install; Install
B) Install; Don't Install
C) Don't Install; Install
D) Don't Install; Don't Install
Correct Answer:
Verified