(See Problem 1

question 15

Multiple Choice

(See Problem 1.) Alice and Betsy are playing a game in which each can play either of two strategies, leave or stay. If both play the strategy leave, then each gets a payoff of $300. If both play the strategy stay, then each gets a payoff of $600. If one plays stay and the other plays leave, then the one who plays stay gets a payoff of $C and the one who plays leave gets a payoff of $D. When is the outcome where both play leave a Nash equilibrium?

• A) When $300 > C and D > $600 but not when $600 >D.
• B) Never, since $600 > $300.
• C) Whenever D < $600.
• D) When D > C and C > $300.
• E) Whenever $300 > C.

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Definitions:

Payback Period

The time required for the return on an investment to repay the sum of the original investment.

Annual After-Tax Net Income

The amount of money a company earns in one year after all expenses and taxes have been deducted.

Profitability Index

A calculation that measures the relative profitability of an investment by dividing the present value of its future cash flows by the initial investment cost.

Payback Period

The time it takes for an investment to generate an amount of income or cash equal to the cost of the investment, used to assess the profitability or risk of an investment.