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Question
Mike and Kate work together as a production team. Each can decide either to work hard or not. An individual's hard work will result in $800 in sales and $400 in cost. An individual's lazy work will result in $200 in sales and $30 in cost. Mike and Kate split the revenue, but they will NOT share their individual cost.
1. Write down the payoff matrix for this game.
2. Find the Nash equilibrium (or equilibria) of this game.
3. Find the socially optimal outcome.-------(so far is ok)
4. Will the production team collapse if both Mike and Kate have the right to withdraw?
My question: how to think about the 4th question and whether the answer is related to results of nash equilibrium and socially optimal outcome?
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