MS The following table lists the union\'s odds of winning in arbitration against

Question

MS The following table lists the union's odds of winning in arbitration against management, depending on which side hires a lawyer Management No L Union No Lowyer 27% 54% Lowyer 77% If the marginal cost of hiring a lawyer is negligible, what are the union's chances of winning in the Nash equilibrium of the game? A) B) C) 27% 54% 77% Firm Z faces the price equation P = 50 + Aas-Q, and the cost function C 20Q + A, where A denotes advertising spending. What is the profit-maximizing level of A? A) A 20 B) A-50 C) A=100

Explanation / Answer

1> Everyone is better-off by hiring a lawyer(Notice that this is a zero sum game)

So, in NE, both hires a lawyer and the correct option is B

2> Profit = Q(50+A^0.5-Q)-20Q-A

Deriving profit with respect to the advertisement, we get. 0.5Q/A^0.5-1=0

So, A=0.25Q^2

Deriving wrt Q, we get 50+A^0.5-2Q-20=0

30+0.5Q=2Q

Q=20

A=100

So, c is correct

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