Tom produces widgets at a cost of 10 per widget. He can only sell widgets to...

 

 

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Tom produces widgets at a cost of 10 per widget. He can only sell widgets to Jerry, and Jerry an only buy them from tom. Jerry values the widgets he buys according to the utility function U = 110q - 10q2, where q is the number of widgets that Jerry buys from Tom J and UJ is Jerry's utility. Tom's utility is UT = -10q if q widgets are produced. The number of widgets, q is determined by bargaining between Tom and Jerry. [25 marks] a) [5 marks] What is the outcome of disagreement? b) [5 marks] Find q which maximizes the joint value. c) [5 marks] Given q from part b), will Tom and Jerry reach an agreement? Explain. d) [10 marks] If there has to be a side payment to agree with the quantity q from part b). who will pay to whom and how much? (We assume that Tom and Jerry have equal bargaining powers) Tom produces widgets at a cost of 10 per widget. He can only sell widgets to Jerry, and Jerry an only buy them from tom. Jerry values the widgets he buys according to the utility function U = 110q - 10q2, where q is the number of widgets that Jerry buys from Tom J and UJ is Jerry's utility. Tom's utility is UT = -10q if q widgets are produced. The number of widgets, q is determined by bargaining between Tom and Jerry. [25 marks] a) [5 marks] What is the outcome of disagreement? b) [5 marks] Find q which maximizes the joint value. c) [5 marks] Given q from part b), will Tom and Jerry reach an agreement? Explain. d) [10 marks] If there has to be a side payment to agree with the quantity q from part b). who will pay to whom and how much? (We assume that Tom and Jerry have equal bargaining powers)

Answer rating: 100% (QA)

Question A If Tom and Jerry fails to reach an agreement they will both be worse off First Tom will not be able to sell any widgets On the other hand J... View the full answer