Consider two craft bourbons distilled in Brooklyn, New York: Kings County and Stillhouse. If the distilleries advertise, they can both sell more bourbon and increase their revenue. However, the cost of advertising more than offsets the increased revenue
so that each distillery ends up with a lower profit than if they do not advertise. On the other hand, if only one advertises, that distillery increases its market share and also its profit.
a. Construct a payoff matrix using the following hypothetical information: If neither distillery advertises: each earns a profit of $500,000 per year. If both advertise: each earns a profit of $250,000 per year. If one advertises and the other does not: the distillery that advertises earns a profit of $750.000 and the distillery that does not advertise earns a profit of $125,000.
b. If the two distilleries agree to coordinate their strategies, what is the outcome?
a. The payoff matrix:
b. If the two distilleries agree to coordinate their strategies, then they would choose not to advertise.
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What do you think would be the Cobb-Douglas single best prescription for poor countries to catch up with the rich?
A) to increase their stock of capital B) to increase their labor force C) to find more efficient ways to allocate and use capital and labor D) to ask help of the rich countries E) none of the above
In the simultaneous move labor negotiation game:
a. The payoffs from bargaining hard are only higher if your opponent accommodates b. The payoffs from bargaining hard are only higher if your opponent bargains hard c. The payoffs are always higher if you bargain hard d. The payoffs are always higher if your opponent bargains hard