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

Answer:

  Payoff Matrix:

                                             Max

                                     Install              Don't Install

Jackson -  Install            $310                $310 , $840

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

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.