242s01q4 - Explain your answer 3(10 pts Consider the...

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ECONOMICS 242 QUIZ 4 SPRING 2001 PLEDGE:____________________________ NAME:______________________________ 1. (5 pts) General Electric CEO Jack Welch has been in charge of the company for over twenty years and is the final word on all major decisions made in the company. Although he does not have complete control over strategic decisions, his grasp on the direction of the company is firm. Compare Welch’s ability to make a probabilistic threat in a game of brinkmanship with that of President Kennedy during the Cuban Missile Crisis. In what way did Kennedy’s reduced control enable him to make threats? 2. (5 pts) Was the threat by the United States in the recent standoff with China over the return of downed air-persons a pure threat or a probabilistic threat?
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Unformatted text preview: Explain your answer. 3. (10 pts) Consider the following game where a union is considering a strike against a firm. From the union’s perspective, the firm is profitable with probability (1-p). a. What is the subgame equilibrium if the firm is profitable? What if it is unprofitable? b. At what level of p is it worthwhile for the union to make a pure threat of striking? b. Suppose the union threatens to strike with the probability q. What is the expected payoff to the firm if the union threatens and the firm defies? Union Unprofitable with prob p. Firm Union Concede Defy Strike Firm NATURE Don’t Concede Defy Strike Don’t Profitable with prob 1-p Union, Firm 10, 10 0, 0 6, 20 10, -1 0, 0 6, 10...
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This test prep was uploaded on 04/22/2008 for the course ECON 242 taught by Professor Nonnenmacher during the Spring '06 term at Allegheny.

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242s01q4 - Explain your answer 3(10 pts Consider the...

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