Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
expand_more
expand_more
format_list_bulleted
Question
Chapter 16, Problem 16.8P
a)
To determine
To find:Nash equilibrium wage contract.
b)
To determine
To know:Whether alternative wage contract is pareto superior to the contract above.
c)
To determine
To know:Condition under which a subpart-perfect equilibrium.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
In a two good two trader model, there are
1000 units of commodity-1 and 800 units of
commodity-2. Explain what additional
information is required to determine the
contract curve and the competitive equilibrium
(if any). Explain with the help of diagram.
In the manager-employee game (work-shirk)? What happens if one of them plays a pure strategy? Please explain.
None
Knowledge Booster
Similar questions
- Consider a Bertrand game between two firms. The demand for firm 1's product is given by q1 = 100 - 3p1 + 2p2. The demand for firm 2's product is given by q2 100- 3p2 +2p1. In terms of notation, p1 is the price of firm 1's product and pa is the price of firm 2's product. The two firms choose their prices simultaneously. For your calculations below, assume zero costs and that prices are measured in dollars per unit. Find the equilibrium prices. as b Derive the firms' best-response functions and explain whether the prices are strategic substitutes or complements in this game.arrow_forwardIn an industry where firms use workers with different personality traits to produce a product. Workers vary in their personality traits, and these can be divided into 12 types along a wheel. Firms enter the market with a specific required personality trait. If a worker's personality trait does not match the firm's desired personality trait, the firm incurs an adaptation cost to close the gap, with a cost of $3 for each unit of personality shift. For example, to go from trait #2 to trait #4, the cost is $6. Given the scale economies in the industry, each firm manages three workers. The gross wage is $20. 1. Company A has six workers, equally spaced on the personality trait wheel at 12:00, 2:00, 4:00, etc. There will be _firms in the city, with firm A at 12:00 and the other firm or firms at 2. Illustrate with a graph 3. For the typical firm, the average mismatch is adaptation cost is 4. Company B has twice as many workers as Company A. It will have _firms. The average adaptation cost is…arrow_forwardThe payoff matrix for the 2-person 0-sum game of Union in negotiation with Management for annual percentage pay raise is given below: M1 4 3 3 4 M2 2 5 2 1 M3 3 U1 U2 U3 U4 9a. Eliminate all dominated strategies to obtain the irreducible matrix. 1 3 4 9b. Identify and solve all sub-games. 9c. Summarize the solution of the game.arrow_forward
- 1) Consider two types of workers, one with productivity of 200,000 (L for low) and another with productivity of 300,000 (H for high). Suppose that 70% of the population is of type L. If a firm cannot observe the skill level of job applicants, what wage would it offer in a competitive equilibrium? 2) Continuing with the assumptions in (1), suppose that the firm offers to pay a higher wage to workers who receive at least y units of school. What wage would the firm pay to each worker type, and what must y be to achieve a separating equilibrium?arrow_forwardConsider trade relations between the United States and Mexico. Assume that the leaders of the two countries believe the payoffs to alternative trade policies are shown in the image attached. a) What is the dominant strategy for the United States? For Mexico? Explain. b) Define Nash equilibrium. What is the Nash equilibrium for trade policy? c) In 1993, the U.S. Congress ratified the North American Free Trade Agreement, in which the United States and Mexico agreed to reduce trade barriers simultaneously. Do the perceived payoffs shown here justify this approach to trade policy? Explain.arrow_forwardConsider a cost sharing problem with three agents who demand 1, 2 and 3, respectively. In general, for any group of agents, S, the cost of satisfying their demands xs = (x;)ies is given by C(xs) = (Eies X;)“, that is, the square of the sum of the demands of the members of S. a. What is the cost of satisfying their collective demands? b. Determine the Average Cost shares. c. Determine the Serial Cost shares.arrow_forward
- Many MBAs who ventured into the “.com” world of the late 1990s found themselves unemployed by 2001 as many firms in that industry ceased to exist. However, during their tenure with these companies, these managers gained valuable skills in how to operate within a highly competitive environment. Based on the numbers in the Table below, which industries represent the best match for these managers’ expertise? Looking at theindustries listed in Table, what factors give rise to the varying levels of market power?arrow_forwardIn our discussion of labor market pooling, we stressed the advantages of having two firms in the same location: If one firm is expanding while the other is contracting, it's to the advantage of both workers and firms that they be able to draw on a single labor pool. But it might happen that both firms want to expand or contract at the same time. Does this constitute an argument against geographical concentration? To answer this question, imagine that there are two companies that both use the same kind of specialized labor, say, two film studios that make use of experts in computer animation. Suppose that there are 250 workers with this special skill. Now compare two different scenarios: In scenario 1, both firms and all 250 workers are in the same city, and each firm is able to hire 125 workers. In scenario 2, the two firms, each with 125 workers, are in two different cities. Now suppose that both firms are contracting, decreasing their demand for labor down to 30 each. In the first…arrow_forwardTwo firms, Incumbent & Entrant, can produce the same good. The market demand for the good is given by P = 180 – Q, where P is the market price and Q is the market quantity demanded. The firms must pay w = 45 per unit of output for labour and r = 45 per unit of output for capital (one unit of capital is used per unit of output), but Incumbent may choose capacity KI units of capital before Entrant decides whether to enter the market. Suppose firms each have fixed costs FI =600, FE=500. Incumbent chooses (as a Stackelberg leader) capacity Kl equal to the monopoly profit- maximizing quantity. When you answer the following questions, show your work. a. Would Incumbent be able to prevent entry by choosing capacity Kl equal to the monopoly profit- maximizing quantity? Explain. b. What is the Incumbent's equilibrium choice of capacity KI in this Dixit game? c. Does the Incumbent's choice of capacity KI in part (b) qualify as predatory conduct (here, limit output)? Explain. %3|arrow_forward
- Two firms, Incumbent & Entrant, can produce the same good. The market demand for the good is given by P = 180 – Q, where P is the market price and Q is the market quantity demanded. The firms must pay w = 45 per unit of output for labour and r = 45 per unit of output for capital (one unit of capital is used per unit of output), but Incumbent may choose capacity KI units of capital before Entrant decides whether to enter the market. Suppose firms each have fixed costs FI =600, FE=500. Incumbent chooses (as a Stackelberg leader) capacity KI equal to the monopoly profit- maximizing quantity. When you answer the following questions, show your work. a. Would Incumbent be able to prevent entry by choosing capacity KI equal to the monopoly profit-maximizing quantity? Explain. b. What is the Incumbent’s equilibrium choice of capacity KI in this Dixit game? c. Does the Incumbent’s choice of capacity KI in part (b) qualify as predatory conduct (here, limit output)? Explain.arrow_forwardSuppose two firms, A and B, have a cost function of ?(??) = 30??, for ? = ?, ?. The inverse demand for the market is given by ? = 120 − ?, where Q represents the total quantity in the market, ? = ?? + ??. 1. Solve for the firms’ outputs in a Nash Equilibrium of the Cournot Model. 2. Let Firm A be the first mover, and Firm B be the second mover. Solve for the firms’ outputs in a SPNE of the Stackelberg Model.arrow_forwardSolve the following questionarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning