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. The Nash equilibrium occurs where
A) both Tasha and Gloria work extremely hard.
B) both Tasha and Gloria work somewhat hard.
C) Both A and B represent Nash equilibria.
D) There is not a Nash equilibrium in this scenario.

Question

Quizplus · Accepted Answer

In a Nash equilibrium, each player's strategy is optimal given the strategy of the other player. If both work extremely hard, they each earn $15 ($30 revenue - $15 effort), which is better than the $12 ($22 revenue - $10 effort) they would earn if both worked somewhat hard. Thus, both working extremely hard is the Nash equilibrium.