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Quiz 25. Game Theory

# Quiz 25. Game Theory - (a Fill in the payoffs for each...

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Shomu Banerjee ECON 201 GAME THEORY QUIZ Tom is a monopoly manufacturer who can use laborers to pack his product into boxes or use an expensive set of robotic arms which will reduce the number of workers he hires but increase his fixed cost. Tom’s profit is \$900 without the machine and \$500 if he buys the machine. Ann is an entrepreneur and is wondering if she should enter this market (which would turn it from a monopoly into a duopoly). If she does not enter, she earns \$0. If she does enter, Tom earns \$400 if he uses labor and \$132 with the robot, while Ann earns \$300 when Tom uses labor and makes a loss of \$36 if Tom buys the robotic arms.
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Unformatted text preview: (a) Fill in the payoffs for each player in the matrix below: Stay out Enter Ann's actions Tom's actions Use labor Use robot (b) Does either Tom or Ann have a dominant strategy? If so, what is/are it/they? (c) What is a Nash equilibrium in this game if both players choose their actions at the same time? (d) Consider the sequential game where Tom is the leader and chooses his action first followed by Ann as shown by the tree below: Tom Ann Ann Use labor Use robot Stay out Enter Stay out Enter The payoffs are the same as what you calculated in (a) . What is a subgame perfect equilibrium in this game?...
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