A manufacturer of car parts is struggling financially. Their managers get bonuses based on how well their net income meets the budget. In early 2018, there was a management switch. The new manager didn't know that the previous manager had greatly ramped up production in 2017, leading to a surplus of inventory at year's end. This company applies absorption costing to its inventory.

Required Based on your understanding, describe the reasons behind the prior management's decision to increase production and inventory levels. (2Points)

B) In a game involving two parties: a Supplier and a Retailer. The Supplier can choose to either "Offer High Quality" or "Offer Low Quality" products, while the Retailer can decide to "Buy from Supplier" or "Not Buy." The payoffs for each party based on their choices are as follows:

• If the Retailer chooses to "Buy from Supplier" and the Supplier offers "High Quality" products, the payoffs are 7 for the Retailer and 6 for the Supplier.
• If the Retailer chooses to "Buy from Supplier" but the Supplier offers "Low Quality" products, the payoffs are 2 for the Retailer and 7 for the Supplier.
• If the Retailer decides "Not to Buy" from the Supplier, and the Supplier offers "High Quality" products, the payoffs are 5 for the Retailer and 3 for the Supplier.
• If the Retailer decides "Not to Buy" from the Supplier, and the Supplier offers "Low Quality" products, the payoffs are 6 for the Retailer and 5 for the Supplier.

Required

1. Using the textbook Nash equilibrium table format, prepare a payoff table for both investor and manager, taking into account their pricing strategies, Please note that no other table format will be accepted. (2.5 Points)
2. Determine the cooperative solution in this scenario and explain why it isn't a Nash equilibrium. (1.5 Points)
3. Identify a Nash equilibrium in this game and explain why it's the likely outcome of a single play. (1.5 Points)

Answer rating: 100% (QA)

Answer A Reasons for Prior Managements Decision to Increase Production and Inventory Levels Pressure to Meet Budget Targets Managers receiving bonuses ... View the full answer