Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
expand_more
expand_more
format_list_bulleted
Question
error_outline
This textbook solution is under construction.
Students have asked these similar questions
How Gauss–Markov Theorem is applied when X Is Nonrandom?
Diluted Happiness: Consider a relationship between a bartender and a customer. The bartender serves bourbon to the customer and chooses x ∈ [0, 1], which is the proportion of bourbon in the drink served, while 1− x is the proportion of water. The cost of supplying such a drink (standard 4-ounce glass) is cx, where c > 0. The customer, without knowing x, decides on whether or not to buy the drink at the market price p. If he buys the drink his payoff is vx − p, and the bartender’s payoff is p − cx. Assume that v>c and all payoffs are common knowledge. If the customer does not buy the drink he gets 0 and the bartender gets −cx. Because the customer has some experience, once the drink is bought and he tastes it, he learns the value of x, but this is only after he pays for the drink.
a. Find all the Nash equilibria of this game.
b. Now assume that the customer is visiting town for 10 days, and this “bar game” will be played on each of the 10 evenings that the customer is in town.…
Diluted Happiness: Consider a relationship between a bartender and a customer. The bartender serves bourbon to the customer and chooses x ∈ [0, 1], which is the proportion of bourbon in the drink served, while 1− x is the proportion of water. The cost of supplying such a drink (standard 4-ounce glass) is cx, where c > 0. The customer, without knowing x, decides on whether or not to buy the drink at the market price p. If he buys the drink his payoff is vx − p, and the bartender’s payoff is p − cx. Assume that v>c and all payoffs are common knowledge. If the customer does not buy the drink he gets 0 and the bartender gets −cx. Because the customer has some experience, once the drink is bought and he tastes it, he learns the value of x, but this is only after he pays for the drink.
a. Find all the Nash equilibria of this game.
b. Now assume that the customer is a local, and the players perceive the game as repeated infinitely many times. Assume that each player tries to maximize…
Knowledge Booster
Similar questions
- By using the expected utility theory approach with u(x)=x2, choose the optimal decision for three different possible outcomes with probabilities p(ω1)=1/2, p(ω2)=p(ω3)=1/4, rewards R(d1,ω1)=£49,R(d1,ω2)=R(d1,ω3)=£25, R(d2,ω1)=£36,R(d2,ω2)=£100,R(d2,ω3)=£0, R(d3,ω1)=£81,R(d3,ω2)=R(d3,ω3)=£0arrow_forwardShow that a decision maker who has a linear utilityfunction will rank two lotteries according to their expectedvalue.arrow_forwardYou are modeling a qualitative variable that takes on two classes (classes 1 and 2). In trying to classify observation 11 (out of 20) you compute the conditional probability for class 1 as 0.51. How would you classify this observation?arrow_forward
- In the July 29, 2001, issue of The Journal News (Hamilton, Ohio), Lynn Elber of the Associated Press reported that “while 40 percent of American families own a television set with a V-chip installed to block designated programs with sex and violence, only 17 percent of those parents use the device.”(a)Use the report’s results to find an estimate of the probability that a randomly selected American family has used a V-chip to block programs containing sex and violence.find P(V and U)According to the report, more than 50 percent of parents have used the TV rating system (TV-14, etc.) to control their children’s TV viewing. How does this compare to the percentage using the V-chip?arrow_forwardPlease give solution in correct and step by step answer format thanku Explaniation Please!!! Five people go to the supermarket to buy milk. Each person is equally likely to select (independently) from ten different brands available. Find the probability that they each select: (a) A different brand. (b) The same brand.arrow_forwardLet b(p,s,t) be the bet that pays out s with probability p and t with probability 1−p. We make the three following statements: S1: The CME for b is the value m such that u(m)=E[u(b(p,s,t))]. S2: A risk averse attitude corresponds to the case CME smaller than E[b(p,s,t))]. S3: A risk seeking attitude corresponds to a convex utility function. Are these statements true or false?arrow_forward
- Apple and Google are interested in hiring a new CEO. Both firms have the same set of final candidates for the CEO position: Indra, Cao, and Virginia. Both firms need to decide who to make a job offer to, and the hiring process is such that they each only make one job offer.If, say, Apple makes a job offer to Indra and Google makes a job offer to one of the other candidates, then Apple’s probability of success in hiring Indra is pIndra. The same is true for Google. If they both make a job offer to Indra, each has probability pIndra/2 of success. It has been estimated that pIndra = 20%, and pCao = pVirginia = 30% (Note that these probabilities need not add up to 100%).Suppose that both Apple and Google attach a valuation of 10 to successfully hiring Indra, and a valuation of 7 to successfully hiring each of the other candidates. A hiring attempt, if unsuccessful, has a valuation of zero. (a) Convert this story into a game by completing the following game table;GoogleIndra Cao…arrow_forwardApple and Google are interested in hiring a new CEO. Both firms have the same set of final candidates for the CEO position: Indra, Cao, and Virginia. Both firms need to decide who to make a job offer to, and the hiring process is such that they each only make one job offer. If, say, Apple makes a job offer to Indra and Google makes a job offer to one of the other candidates, then Apple’s probability of success in hiring Indra is pIndra. The same is true for Google. If they both make a job offer to Indra, each has probability pIndra/2 of success. It has been estimated that pIndra = 20%, and pCao = pVirginia = 30% (Note that these probabilities need not add up to 100%). Suppose that both Apple and Google attach a valuation of 10 to successfully hiring Indra, and a valuation of 7 to successfully hiring each of the other candidates. A hiring attempt, if unsuccessful, has a valuation of zero. Convert this story into a game by completing the following game table; Google…arrow_forwardArielle is a risk-averse traveler who is planning a trip to Canada. She is planning on carrying $400 in her backpack. Walking the streets of Canada, however, can be dangerous and there is some chance that she will have her backpack stolen. If she is only carrying cash and her backpack is stolen, she will have no money ($0). The probability that her backpack is stolen is 1/5. Finally assume that her preferences over money can be represented by the utility function U(x)=(x)^0.5 Suppose that she has the option to buy traveler’s checks. If her backpack is stolen and she is carrying traveler’s checks then she can have those checks replaced at no cost. National Express charges a fee of $p per $1 traveler’s check. In other words, the price of a $1 traveler’s check is $(1+p). If the purchase of traveler’s checks is a fair bet, then we know that the purchase of traveler checks will not change her expected income. Show that if the purchase is a fair bet, then the price (1+p) = $1.25.arrow_forward
- Suppose that Winnie the Pooh and Eeyore have the same value function: v(x) = x1/2 for gains and v(x) = -2(|x|)1/2 for losses. The two are also facing the same choice, between (S) $1 for sure and (G) a gamble with a 25% chance of winning $4 and a 75% chance of winning nothing. Winnie the Pooh and Eeyore both subjectively weight probabilities correctly. Winnie the Pooh codes all outcomes as gains; that is, he takes as his reference point winning nothing. For Pooh: What is the value of S? What is the value of G? Which would he choose? Eeyore codes all outcomes as losses; that is, he takes as his reference point winning $4. For Eeyore: What is the value of S? What is the value of G? Which would he choose?arrow_forward(Ch 6) True or False? In a hotel, 50 percent of the guests pay by American Express credit card. Suppose the first X-1 guests use NON-American Express credit cards while the Xth guest is the first to use an American Express. Then X follows a geometric distribution. And P(X=2)=0.25.arrow_forwardExplain why the variance of an investment is a useful measure of the risk associated with itarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning