Alice and Billy have formed a business partnership. They each have to simultaneously decide how much...
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Alice and Billy have formed a business partnership. They each have to simultaneously decide how much effort to put into the partnership. Let A be the amount of effort put in by Alice, and let B be the amount of effort put in by Billy. The joint profits of the partnership are given by 6A + 4B + AB, and the two partners split these profits equally. However, they must each separately incur the costs of their own effort; the cost to Alice of her effort is A2, and the cost to Billy of his effort is B2/2. (a) (10%) Derive the best-response functions for the two partners. (b) (10%) Find all the Nash equilibria. Alice and Billy have formed a business partnership. They each have to simultaneously decide how much effort to put into the partnership. Let A be the amount of effort put in by Alice, and let B be the amount of effort put in by Billy. The joint profits of the partnership are given by 6A + 4B + AB, and the two partners split these profits equally. However, they must each separately incur the costs of their own effort; the cost to Alice of her effort is A2, and the cost to Billy of his effort is B2/2. (a) (10%) Derive the best-response functions for the two partners. (b) (10%) Find all the Nash equilibria.
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Related Book For
Accounting Principles Volume 2
ISBN: 9781119786634
9th Canadian Edition
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak
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