Question: Every November, Smith and Jones each face the choice between burning their leaves or stuffing them into garbage bags.
Burning the leave sis much easier but produces noxious smoke. The utility values for each person, measured in utils, are listed in the table for each of the four possible combinations of actions:
|
|
Smith
|
|
Jones
|
|
Burn
|
Bag
|
|
Burn
|
Jones
|
4
|
Jones
|
8
|
|
Smith
|
4
|
Smith
|
2
|
|
Bag
|
Jones
|
2
|
Jones
|
6
|
|
Smith
|
8
|
Smith
|
6
|
a. If Smith and Jones are utility maximizers and make their decisions individually what will they do?
b. How will your answer to part (a) differ, if at all, if Smith and Jones can make binding agreements with each other?