Two neighboring homeowners, i = 1, 2, simultaneously choose how many hours li to spend maintaining a…

Two neighboring homeowners, i = 1, 2, simultaneously choose how many hours li to spend maintaining a beautiful lawn. The average benefit per hour is

and the (opportunity) cost per hour for each is 4. Homeowner i ’s average benefit is increasing in the hours neighbor j spends on his own lawn, since the appearance of one’s property depends in part on the beauty of the surrounding neighborhood.

a. Compute the Nash equilibrium.

b. Graph the best-response functions and indicate the Nash equilibrium on the graph.

c. On the graph, show how the equilibrium would change if the intercept of one of the neighbor’s average benefit functions fell from 6 to some smaller number.