Q5A and B are sharing a room with a TV and a DVD player. DVD's can be rented for the weekend for a cost of $5. They would each get $4 worth of enjoyment from a weekend movie, so if both of them rent a movie a on a particular weekend they can each get $8 worth of enjoyment at a cost of $5 rental. (a) Model this as a strategic form game with both players having the strategies Rent (R) and No Rent (N), (b) What is the equilibrium if they share the room for one weekend only? (e) Draw the extensive form of the game if they stay together for two weeks, and identify the subgame perfect equilibria.

ENGR.ECONOMIC ANALYSIS
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Q5 A and B are sharing a room with a TV and a DVD player. DVD's can be rented for the
weekend for a cost of $5. They would each get $4 worth of enjoyment from a weekend movie, so
if both of them rent a movie a on a particular weekend they can each get $8 worth of enjoyment
at a cost of $5 rental.
(a) Model this as a strategic form game with both players having the strategies Rent (R) and
No Rent (N),
(b) What is the equilibrium if they share the room for one weekend only?
(e) Draw the extensive form of the game if they stay together for two weeks, and identify the
subgame perfect equilibria.
(d) Explain whether or not the outcome of the game will change if they stay together for 10
weeks.
Transcribed Image Text:Q5 A and B are sharing a room with a TV and a DVD player. DVD's can be rented for the weekend for a cost of $5. They would each get $4 worth of enjoyment from a weekend movie, so if both of them rent a movie a on a particular weekend they can each get $8 worth of enjoyment at a cost of $5 rental. (a) Model this as a strategic form game with both players having the strategies Rent (R) and No Rent (N), (b) What is the equilibrium if they share the room for one weekend only? (e) Draw the extensive form of the game if they stay together for two weeks, and identify the subgame perfect equilibria. (d) Explain whether or not the outcome of the game will change if they stay together for 10 weeks.
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