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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.
- Spring '06