Two firms compete for hiring workers in the labour market. The equilibrium wage is w = alpha + beta(H1 + H2), where alpha, beta; > 0 are parameters, and Hi is the number of workers hired by firm i = 1; 2. Firm i's profit is (y - w) Hi, where y is the output per worker. Assume y > alpha . Firm i chooses Hi to maximize its profit. Do the following: (a) Consider the two firms decide on Hi simultaneously. Derive the Nash equilibrium. (b) Consider the two firms make decisions sequentially. Firm 1 gets to hire first, followed by firm 2. Derive the subgame perfect equilibrium
Two firms compete for hiring workers in the labour market. The equilibrium wage is w = alpha + beta(H1 + H2), where alpha, beta; > 0 are parameters, and Hi is the number of workers hired by firm i = 1; 2. Firm i's profit is (y - w) Hi, where y is the output per worker. Assume y > alpha . Firm i chooses Hi to maximize its profit. Do the following: (a) Consider the two firms decide on Hi simultaneously. Derive the Nash equilibrium. (b) Consider the two firms make decisions sequentially. Firm 1 gets to hire first, followed by firm 2. Derive the subgame perfect equilibrium
Survey of Economics (MindTap Course List)
9th Edition
ISBN:9781305260948
Author:Irvin B. Tucker
Publisher:Irvin B. Tucker
Chapter4: Markets In Action
Section: Chapter Questions
Problem 17SQ
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Two firms compete for hiring workers in the labour market.
The equilibrium wage is w = alpha + beta(H1 + H2), where alpha, beta; > 0 are parameters,
and Hi is the number of workers hired by firm i = 1; 2. Firm i's profit is
(y - w) Hi, where y is the output per worker. Assume y > alpha . Firm i chooses
Hi to maximize its profit. Do the following: (a) Consider the two firms decide
on Hi simultaneously. Derive the Nash equilibrium. (b) Consider the two
firms make decisions sequentially. Firm 1 gets to hire first, followed by firm
2. Derive the subgame perfect equilibrium
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