Scenario 6.1: Tasha and Gloria are friends who each produce beaded headbands. Each can choose to work somewhat hard and expend $10 worth of effort, or can work extremely hard and expend $15 worth of effort. If either works somewhat hard, she can produce headbands that sell for a total of $22. If either works extremely hard, she can produce headbands which sell for a total of $30. Both Tasha and Gloria are equally good at making beaded headbands.
-Refer to Scenario 6.1. Suppose the friends are forced by government to combine their businesses and share what they make. With this revision to the scenario, the dominant strategy is for Tasha to work ________ and for Gloria to work ________.
A) extremely hard; extremely hard
B) extremely hard; somewhat hard
C) somewhat hard; extremely hard
D) somewhat hard; somewhat hard

Question

Quizplus · Accepted Answer

When forced to combine their businesses and share profits, both Tasha and Gloria have an incentive to minimize their effort while still benefiting from the total output. Working somewhat hard minimizes individual effort ($10 each) while still allowing them to share the combined revenue. This scenario creates a "free rider" problem where each prefers to exert less effort while benefiting from the collective output, making "somewhat hard; somewhat hard" the dominant strategy for both.