BUS 5421- Week 6 HW.docx - BUS 5421 Managerial Economics...

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BUS 5421 - Managerial Economics Week 6: Homework Questions Chapter 15 15-4 Salary Negotiation The below figure represents the potential outcomes of your first salary negotiation after graduation. Assuming this is a sequential-move game with the employer moving first, indicate the most likely outcome. Does the ability to move first give the employer the advantage? If so, how? As the employee, is there anything you can do to realize a higher payoff? Answer: Having the ability to move first does give the employer the advantage. A Nash equilibrium is a pair of strategies, one for each player, in which each strategy is a best response to the other (p.186). The players in this question are Employee and Employer with a game taking turns called sequential-move. Employer makes first move: Low salary offer Employee walks (Employer gets 0, Employee gets 0) Employee accepts (Employer gets 100, Employee gets 75) Higher salary offer Employee walks (Employer gets 0, Employee gets 0) Employee accepts (Employer gets 75, Employee gets 100) Given the sequential-move game with employer moving first, this does give the employer an advantage. It allows the employer to start the salary offer at the lower amount given that most likely the employee will accept. But there is the possibility that the employee can realize a higher profit by a counter-offer for a higher salary. This would place the decision back to the employer, if employer will not provide higher salary then the decision or player's turn is back on employee, which would either decide to walk or accept original low salary offer.

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