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Business, 16.06.2020 17:57 jmanrules200

Rajiv and Yakov are considering contributing toward the creation of a public park. Each can choose whether to contribute $300 to the public park or to keep that $300 for a new suit. Since a public park is a public good, both Rajiv and Yakov will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.70 of benefit. For example, if both Rajiv and Yakov choose to contribute, then a total of $600 would be contributed to the public park. So, Rajiv and Yakov would each receive $420 of benefit from the public park, and their combined benefit would be $840. This is shown in the upper left cell of the first table.

Since a new suit is a private good, if Rajiv chooses to spend $300 on a new suit, Rajiv would get $300 of benefit from the new suit and Yakov wouldn't receive any benefit from Rajiv's choice. If Rajiv still spends $300 on a new suit and Yakov chooses to contribute $300 to the public park, Rajiv would still receive the $210 of benefit from Yakov's generosity. In other words, if Rajiv decides to keep the $300 for a new suit and Yakov decides to contribute the $300 to the public project, then Rajiv would receive a total benefit of $300+$210=$510, Yakov would receive a total benefit of $210, and their combined benefit would be $720. This is shown in the lower left cell of the first table.

Complete the following table, which shows the combined benefits of Rajiv and Yakov as previously described.

Yakov
Contributes Doesn't contribute
Rajiv Contributes $840
Doesn't contribute $720

Of the four cells of the table, which gives the greatest combined benefits to Rajiv and Yakov?

a. When both Rajiv and Yakov contribute to the public park
b. When Rajiv contributes to the public park and Yakov doesn't, or vice versa
c. When neither Rajiv nor Yakov contributes to the public park

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