Answered: $1 (x1, x2) = 3x1 3x1+x2 x2 and 82(x1,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Two construction companies are lobbying to obtain a share of work on repaving city streets. The share of the project going to each firm depends on money contributions to the mayor’s reelection fund. The project has value V in total. The mayor is somewhat biased in favor of firm 1, which is run by his niece. If firm 1 contributes x1 and firm 2 contributes x2, with at least one contribution strictly larger than zero, then the shares of the project going to firms 1 and 2 are s1 and s2, respectively, where

(see picture)

X2
3x1
s1(21, 22) =
and
s2(*1, x2) =
3x1 + x2
3x1 + x2
If both contributions are zero, then s1 = 82 = 1/2.
The payoff to firm i is T;(x1, x2) = s;V – xi, i = 1,2.
Calculate the Nash equilibrium contributions for each firm.

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