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Discuss 4.3

  • 1)If he cared equally about both their consumptions, the indifference curve would be a right angle line to the curve – ie – an L shape curve. This is as he cares equally about both their consumptions equally. If they receive the same cash, and Bala gets some more than Anil, it won’t give him more utility until he too receives the same income.
  • 2)Since maximum utility happens at total consumption, the indifference curves would lie on the feasible payoffs frontier, and would be parallel to the line. This is as the only way to maximise consumption is to be on the frontier, and extending the frontier by moving outwards.
  • 3)If deriving utility only from Bala, the curve would be a horizontal straight line, as he only derives utility from her, and gains more utility when Bala has greater payoff. His consumption doesn’t add to utility, thus the horizontal indifference.

Discuss 4.10

  • 1)Astrid would end up choosing JAVA due to the higher payoff she receives by committing to her language, and Bettina would choose Java too, as that also maximises her pay off.
  • 2)They would end up deciding on both using C++ , due to the higher overall pay – off (9). The sharing of payoffs would be such that astrid would receive 5, as this is the minimum that would make her switch, whilst letting Bettina still make higher pay – off.
  • 3)They would end up using JAVA, as they prefer this language due to external pay-offs. 

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