MICROECONOMICS (LL) W/CONNECT ACCESS
MICROECONOMICS (LL) W/CONNECT ACCESS
21st Edition
ISBN: 9781264197163
Author: McConnell
Publisher: MCG CUSTOM
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Chapter 14, Problem 6RQ
To determine

How collusive agreements can be established and maintained.

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Teletronics reported record profits of $100,000 last year and is on track to exceed those profits this year. Teletronics competes in a very competitive market where many of the firms are merging in an attempt to gain competitive advantages. Currently, the company’s top manager is compensated with a fixed salary that does not include any performance bonuses. Explain why this manager might nonetheless have a strong incentive to maximize the firm’s profits. (LO4, LO5)
Use the following payoff matrix to answer the following questions. (LO2)                                                                   Player 2                                            Strategies            C                                 D                         Player 1        A               −10, −10                   200, −100                                               B              −100, 220                    140, 180cSuppose this is a one-shot game: a. Determine the dominant strategy for each player. If such strategies do not exist, explain why not. b. Determine the secure strategy for each player. If such strategies do not exist, explain why not. c. Determine the Nash equilibrium of this game. If such an equilibrium does not exist, explain why not.
Abdul’s utility function is given by U A 5 M A 2 y M B , where M A is Abdul’s wealth level and M B is Benjamin’s wealth level. Benjamin’s utility function is given by (LO1) U B 5 M B 2 y M A . Suppose M A 5 M B 5 10 initially, and suppose there is a joint project that Ab dul and Benjamin can undertake that will generate an additional 10 units of wealth to divide between them. The project is neither pleasant nor unpleasant. What is the minimum payment Abdul must be given to secure his agreement to perform the project? What is the minimum payment Benjamin must be given? Will they perform the project? (LO1)
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