The payoff matrix below shows the payoffs to Firms A and B from producing different levels of output. The numbers in parentheses are (payoff to A, payoff to B). Firm B Produce Produce 1 000 Units 2 000 Units Produce 1 000 Units (100, 100) (10, 150) Firm A Produce 2 000 Units (150, 10) (30, 30) TABLE 11-3 36) Refer to Table 11-3. The Nash equilibrium in this game is A) (Firm A: produce 1000 units, Firm B: produce 1000 units). B) (Firm A: produce 2000 units, Firm B: produce 1000 units). C) (Firm A: produce 2000 units, Firm B: produce 2000 units). D) (Firm A: produce 1000 units, Firm B: produce 2000 units). E) non-existent
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Use the following table to answer questions 1 - 3.
| Number of Workers | Output | Marginal Product of Labor | Value of Marginal Product of Labor | Wage | Marginal Profit |
| 0 | 0 | ||||
| 1 | 100 | $1000 | $400 | $500 | |
| 2 | 80 | $800 | $400 | ||
| 3 | 60 | $400 | $100 | ||
| 4 | 280 | $400 | $400 | ||
| 5 | 20 | $400 |
1. What is the market price of the final good?
A. $5
B. $6
C. $8
D. $10
2. If the firm hires two workers, the two workers together produce
A. 80 units
B. 100 units
C. 180 units
D. 200 units
3. To maximize its profits, how many workers will the firm hire?
A. 2
B. 3
C. 4
D. 5
Two firms are planning to sell 10 or 20 units of their goods and face the following profit matrix:
Firm 2
| Firm 1 | 10 | 20 | |
| 10 | 30, 30 | 50, 35 | |
| 20 | 60, 40 | 20, 20 | |
a. What is the Nash equilibrium if both firms make their decisions simultaneously?
b. How does your analysis change if the government imposes a lump-sum franchise tax of 40 on each firm (that is, the payoffs in the matrix are all reduced by 40). Explain how your analysis would change if the firms have an additional option of shutting down and avoiding the lump-sum tax rather than producing 10 or 20 units and paying the tax.
c. Draw the game tree if Firm 1 can decide first (and there is no tax). What is the outcome? Why?
d. Draw the game tree if Firm 2 can decide first. What is the outcome? Why?
