# 2008final - PART A: Answer all questions. Each question is...

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PART A: Answer all questions . Each question is worth 10 marks. 1. What are the characteristics of a &strategic move±? In the Dixit model of Entry De- terrence, the Incumbent ²rm±s investment in capacity is a sunk cost. What are sunk costs? Explain the importance of the sunk nature of the costs to the strategic move of the Incumbent ²rm in the Dixit model. 1

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s and a bonus, b s + b is only paid to the manager if the manager achieves a particular performance target. If the manager exerts normal e/ort, the probability of achieving the performance target is 1 3 . If the manager exerts high e/ort, the probability of achieving the performance target is 5 6 . The manager views extra e/ort (increasing e/ort from normal to high) as costly since it requires the manager to work long hours. The manager requires an extra \$100 ; 000 in compensation to be willing to exert high e/ort. Write out the the manager to exert high e/ort. Determine the smallest value of b that will induce the manager to exert high e/ort. 2
equilibria of the following game where pre-game communication by player

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## This document was uploaded on 05/11/2011.

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2008final - PART A: Answer all questions. Each question is...

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