4. (5 points) Is there a principal-agent relationship between a manager and a worker in the same firm, when the worker does not report to the manager and is not evaluated by the manager and the manager does not have to sign off on the worker's pay raises or promotions (is one of them the principal and the other one the agent)? Please give an explanation. 5. (10 points) XYZ Labs-the sole producer of Diamatine (a prescription drug)-charges a price for the drug that is significantly above the firm's marginal cost. It takes XYZ Labs 10 years of research and development and an expenditure of hundreds of millions of dollars before products like Diamatine are finally sold in the market. Do you think government regulators would be wise to impose price ceilings on Diamatine in order to bring the price in line with marginal costs? Explain. 6. (10 points) The following is a simultaneous move one shot game Firm B Low Price High Price Low Price (200, 500) (600, 600) Firm A High Price (0, 1500) (400, 1000) a. Does Firm A have a dominant strategy? If yes, what is it? b. Does Firm B have a dominant strategy? If yes, what is it? c. What is Firm A's secure strategy? d. What is Firm B's secure strategy? e. What is the Nash equilibrium for the one-shot game?
4. (5 points) Is there a principal-agent relationship between a manager and a worker in the same firm, when the worker does not report to the manager and is not evaluated by the manager and the manager does not have to sign off on the worker's pay raises or promotions (is one of them the principal and the other one the agent)? Please give an explanation. 5. (10 points) XYZ Labs-the sole producer of Diamatine (a prescription drug)-charges a price for the drug that is significantly above the firm's marginal cost. It takes XYZ Labs 10 years of research and development and an expenditure of hundreds of millions of dollars before products like Diamatine are finally sold in the market. Do you think government regulators would be wise to impose price ceilings on Diamatine in order to bring the price in line with marginal costs? Explain. 6. (10 points) The following is a simultaneous move one shot game Firm B Low Price High Price Low Price (200, 500) (600, 600) Firm A High Price (0, 1500) (400, 1000) a. Does Firm A have a dominant strategy? If yes, what is it? b. Does Firm B have a dominant strategy? If yes, what is it? c. What is Firm A's secure strategy? d. What is Firm B's secure strategy? e. What is the Nash equilibrium for the one-shot game?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:4. (5 points) Is there a principal-agent relationship between a manager and a worker in the same
firm, when the worker does not report to the manager and is not evaluated by the manager and
the manager does not have to sign off on the worker's pay raises or promotions (is one of them
the principal and the other one the agent)? Please give an explanation.
5. (10 points) XYZ Labs-the sole producer of Diamatine (a prescription drug)-charges a
price for the drug that is significantly above the firm's marginal cost. It takes XYZ Labs 10 years
of research and development and an expenditure of hundreds of millions of dollars before
products like Diamatine are finally sold in the market.
Do you think government regulators would be wise to impose price ceilings on Diamatine in
order to bring the price in line with marginal costs? Explain.
6. (10 points) The following is a simultaneous move one shot game
Firm B
Low Price
High Price
Low Price
(200, 500)
(600, 600)
Firm A
High Price
(0, 1500)
(400, 1000)
a. Does Firm A have a dominant strategy? If yes, what is it?
b. Does Firm B have a dominant strategy? If yes, what is it?
c. What is Firm A's secure strategy?
d. What is Firm B's secure strategy?
e. What is the Nash equilibrium for the one-shot game?
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