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, if both Tasha and Gloria play their dominant strategies, Tasha's net payoff will be ________ and Gloria's net payoff will be ________.
A) $15; $12
B) $15; $15
C) $30; $30
D) $12; $12

Question

Quizplus · Accepted Answer

When forced to combine their businesses and share what they make, both Tasha and Gloria are likely to choose the option that requires less effort while still benefiting from the combined sales. If both work somewhat hard, each expending $10 worth of effort for a total of $22 in sales, the combined sales would be $44. After subtracting the total effort cost ($20), the net profit of $24 is shared, resulting in a $12 net payoff for each.