Question 2 Two workers (A and B) work on a production line. They each have two...

  

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Question 2 Two workers (A and B) work on a production line. They each have two actions: exert effort, E, or shirk, S. It costs each worker c € (0, 1) dollars to provide effort and shirking costs them nothing. The workers each earn 1 dollar if they both choose action E. Each worker earn 50 cents if one worker chooses E and the other chooses S. The workers earn nothing if they both shirk. a) Describe this situation as a normal form game. What is the set of pure strategies for each player? b) For each value of c E (0, 1), find all of this game's Nash equilibria. c) Now suppose the workers act in a sequence: First A chooses her effort level, which B observes, and then B chooses his effort level. Describe this situation as an extensive form game. What is the set of pure strategies for each player? d) For each value of c E (0,1), find all of this game's subgame perfect equilibria. Question 2 Two workers (A and B) work on a production line. They each have two actions: exert effort, E, or shirk, S. It costs each worker c € (0, 1) dollars to provide effort and shirking costs them nothing. The workers each earn 1 dollar if they both choose action E. Each worker earn 50 cents if one worker chooses E and the other chooses S. The workers earn nothing if they both shirk. a) Describe this situation as a normal form game. What is the set of pure strategies for each player? b) For each value of c E (0, 1), find all of this game's Nash equilibria. c) Now suppose the workers act in a sequence: First A chooses her effort level, which B observes, and then B chooses his effort level. Describe this situation as an extensive form game. What is the set of pure strategies for each player? d) For each value of c E (0,1), find all of this game's subgame perfect equilibria.

Answer rating: 100% (QA)

a The situation can be described as a normal form game as follows Players A and B Actions E exert effort S shirk Payoffs A 1 dollar if both choose E 5... View the full answer