Lake and Nick are considering contributing toward the creation of a building mural. Each can choose whether to contribute $400 to the building mural
or to keep that $400 for a new suit.
Since a building mural is a public good, both Jake and Nick will benefit from any contributions made by the other person. Specifically, every dollar that
either one of them contributes will bring each of them $0.60 of benefit. For example, if both Jake and Nick choose to contribute, then a total of $800
would be contributed to the building mural. So, Jake and Nick would each receive $480 of benefit from the building mural, and their combined benefit
would be $960. This is shown in the upper left cell of the first table.
Since a new suit is a private good, if Jake chooses to spend $400 on a new suit, Jake would get $400 of benefit from the new suit and Nick wouldn't
receive any benefit from Jake's choice. If Jake still spends $400 on a new suit and Nick chooses to contribute $400 to the building mural, Jake would
still receive the $240 of benefit from Nick's generosity. In other words, if Jake decides to keep the $400 for a new suit and Nick decides to contribute
the $400 to the public project, then Jake would receive a total benefit of $400 + $240 = $640, Nick would receive a total benefit of $240, and their
combined benefit would be $880. This is shown in the lower left cell of the first table.
Complete the following table, which shows the combined benefits of Jake and Nick as previously described.
Nick
Contributes Doesn't contribute
$880
Jake
Contributes
Doesn't contribute
$960
$880
$800