A Cab Service Company employs 8 drivers. Each driver is able to serve 20 clients per hour worked. Working hours are flexible, so that each driver is free to choose how many hours she wants to work. For each driver, the effort cost of working is 5h2, where h is the number of hours worked by this driver. The cab company pays each driver a bonus b for each client served by that driver. Each driver's utility equals her own income minus the effort cost of working. Each driver chooses the number of hours that maximize her own utility. The cab company charges each client a price P-52. In addition to the bonus paid to drivers, the company also incurs an operational cost equal to 0.005Q², where Q is to total quantity of clients served by the whole company (Hint: use q to represent the number of clients served by each driver, and Q to represent the total number of clients served by the whole company). The timing of the game is the following: 1) The Cab Company announces the bonus b it will pay drivers for each client served. 2) Each driver then chooses how many hours she will work. Given this information, answer the following qu a) The best response function of each driver is b) In the SPE, the company will optimally offer *Select Answer* h=1b h=2b
A Cab Service Company employs 8 drivers. Each driver is able to serve 20 clients per hour worked. Working hours are flexible, so that each driver is free to choose how many hours she wants to work. For each driver, the effort cost of working is 5h2, where h is the number of hours worked by this driver. The cab company pays each driver a bonus b for each client served by that driver. Each driver's utility equals her own income minus the effort cost of working. Each driver chooses the number of hours that maximize her own utility. The cab company charges each client a price P-52. In addition to the bonus paid to drivers, the company also incurs an operational cost equal to 0.005Q², where Q is to total quantity of clients served by the whole company (Hint: use q to represent the number of clients served by each driver, and Q to represent the total number of clients served by the whole company). The timing of the game is the following: 1) The Cab Company announces the bonus b it will pay drivers for each client served. 2) Each driver then chooses how many hours she will work. Given this information, answer the following qu a) The best response function of each driver is b) In the SPE, the company will optimally offer *Select Answer* h=1b h=2b
Chapter7: Uncertainty
Section: Chapter Questions
Problem 7.12P
Related questions
Question
Q8
Transcribed Image Text:QUESTION 8
A Cab Service Company employs 8 drivers. Each driver is able to serve 20 clients per hour worked. Working hours are flexible, so that each driver is free to choose how many hours she
wants to work. For each driver, the effort cost of working is 5h2, where h is the number of hours worked by this driver. The cab company pays each driver a bonus b for each client
served by that driver. Each driver's utility equals her own income minus the effort cost of working. Each driver chooses the number of hours that maximize her own utility.
The cab company charges each client a price P=52. In addition to the bonus paid to drivers, the company also incurs an operational cost equal to 0.005Q², where Q is to total quantity
of clients served by the whole company (Hint: use q to represent the number of clients served by each driver, and Q to represent the total number of clients served by the whole
company).
The timing of the game is the following:
1) The Cab Company announces the bonus b it will pay drivers for each client served.
2) Each driver then chooses how many hours she will work.
Given this information, answer the following qu ✓
a) The best response function of each driver is
b) In the SPE, the company will optimally offer
QUESTION 9
Consider the following sequential entry deterra
number represents the payoff of Player 1, whil
Player 2
L
(2,4)
a
Player 1
R
(4,2)
b
Playe
(3,8)
*Select Answer*
h = 1b
h = 2b
h = 3b
h = 4b
h = 5b
h = 6b
h = 7b
h = 8b
h = 9b
h = 10b
1
2
3
4
5
6
7
8
00
lays first, and then Player 2 plays after observing the choice of Player 1. At the bottom of the decision tree, the first
represents the payoff of Player 2.
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