Ashley is negotiating an employment contract with a prospective employer, the La Jolla YMCA. The contract specifies two things: (1) Ashley's job description, which is surfing instructor or tennis instructor, and (2) Ashley's salary I. Ashley is better at teaching people to surf than teaching people to play tennis, and she enjoys surfing more. If Ashley works as a surfing instructor for the YMCA, then Ashley's payoff is t - 10,000 and the YMCA's payoff is 60,000 - t. If Ashley works as a tennis instructor, then her payoff is t - 20,000 and the YMCA's payoff is 65,000 - t.
If Ashley and the YMCA fail to reach an agreement, then the YMCA gets a payoff of 10,000 and Ashley obtains 20,000. In other words, the disagreement outcome of this negotiation problem is given by dA = 20,000 and 4 = 10,000. The value 20,000 is due to Ashley's outside opportunity, which is to work as a writer for the San Diego Reader newspaper. The value of 10,000 for the YMCA is due to it having to hire someone who is less skilled than Ashley.
Solve this bargaining problem using the standard bargaining solution, under the assumption that Ashley and the YMCA have equal bargaining weights of 1/2. What job description and salary do they agree to? Explain.