Two tech companies, Innovate Tech and FutureSoft, are considering implementing new equity, diversity, and inclusion (EDI) strategies to improve their workplace culture and attract diverse talent. Each company can choose the level of investment in EDI initiatives, and their profits can be expressed as functions of EDI investments as follows: • Innovate Tech's annual investment in EDI initiatives in millions of $ is denoted as E1. • FutureSoft's annual investment in EDI initiatives in millions of $ is denoted as E2. • Innovate Tech's annual profits are: P₁ = 90E1 - 5E₁² + E1E2. • FutureSoft's anual profits are: P2 = 90E2 - 5E2² + E2E1. Note that each firm's profits depend positively not only on their own investment in EDI, but also on the other firm's EDI investment. This reflects the idea that a firm's investment in EDI creates a deeper and broader societal understanding of the value of EDI, which in turn increases the value of EDI investments in other firms. a) Suppose that InnovateTech and FutureSoft select their EDI investments simultaneously. Determine the Nash equilibrium in EDI investments Ela and E2a. What are InnovateTech's and FutureSoft's profits P₁a and P2a? b) Suppose that InnovateTech makes its EDI investment before FutureSoft. Calculate the equilibrium EDI investments E1a and E2a by InnovateTech and FutureSoft, respectively. What are these firms' respective profits P₁b and P2b? How do investments and profits compare to those of part a)? Explain briefly. c) Suppose now that there are 10 competitors in the industry (including InnovateTech (Firm 1) and FutureSoft (Firm 2)). In this context, the firm's profits can be expressed as: P₁ =90E1-5E1² + E1 (E2 + E3 + ... + E10) P2 90E2-5E2² + E2(E1 + E3 + ... + E10) P3 90E3-5E3² + E3 (E1 + E2 + E4 + + E10) P10 90E10-5E10² + E10 (E1 + E2 + ... + E9) All firms choose output simultaneously. Find the Nash equilibrium in EDI investments and profits. (Hint: Note that this is a symmetric game...) How do investments and profits compare to those of part a)? Explain briefly.

Two tech companies, Innovate Tech and FutureSoft, are considering implementing new equity, diversity, and inclusion (EDI) strategies to improve their workplace culture and attract diverse talent. Each company can choose the level of investment in EDI initiatives, and their profits can be expressed as functions of EDI investments as follows: • Innovate Tech's annual investment in EDI initiatives in millions of $ is denoted as E1. • FutureSoft's annual investment in EDI initiatives in millions of $ is denoted as E2. • Innovate Tech's annual profits are: P₁ = 90E1 - 5E₁² + E1E2. • FutureSoft's anual profits are: P2 = 90E2 - 5E2² + E2E1. Note that each firm's profits depend positively not only on their own investment in EDI, but also on the other firm's EDI investment. This reflects the idea that a firm's investment in EDI creates a deeper and broader societal understanding of the value of EDI, which in turn increases the value of EDI investments in other firms. a) Suppose that InnovateTech and FutureSoft select their EDI investments simultaneously. Determine the Nash equilibrium in EDI investments Ela and E2a. What are InnovateTech's and FutureSoft's profits P₁a and P2a? b) Suppose that InnovateTech makes its EDI investment before FutureSoft. Calculate the equilibrium EDI investments E1a and E2a by InnovateTech and FutureSoft, respectively. What are these firms' respective profits P₁b and P2b? How do investments and profits compare to those of part a)? Explain briefly. c) Suppose now that there are 10 competitors in the industry (including InnovateTech (Firm 1) and FutureSoft (Firm 2)). In this context, the firm's profits can be expressed as: P₁ =90E1-5E1² + E1 (E2 + E3 + ... + E10) P2 90E2-5E2² + E2(E1 + E3 + ... + E10) P3 90E3-5E3² + E3 (E1 + E2 + E4 + + E10) P10 90E10-5E10² + E10 (E1 + E2 + ... + E9) All firms choose output simultaneously. Find the Nash equilibrium in EDI investments and profits. (Hint: Note that this is a symmetric game...) How do investments and profits compare to those of part a)? Explain briefly.

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter10: Price-searcher Markets With Low Entry Barriers

Section: Chapter Questions

Problem 10CQ

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