Question

Jackson and Max are the only inhabitants of a small tropical island. Each drives an old, smoke-belching Oldsmobile. Suppose that installing a pollution-control device costs $940. Suppose also that for each pollution-control device installed, both Jackson and Max will see their health care costs decrease by $660.

Required:
Write down the payoff matrix.

Answer 1

Payoff Matrix:

Max

Install Don't Install

Jackson - Install $310 $310 , $840

Not Install $840, $310 $0 , $0

Step-by-step explanation:

If the device is not installed the payoff is $840 and if the device is installed the pay off is $310. This is calculated by deducting the cost of control device from the decrease in cost of the health care service which is $840 - $530 = $310.