Suppose That You Are a Manager Management and a Labor Union Are Bargaining Over How Much

question 93

Multiple Choice

Suppose that you are a manager.You are considering whether or not to monitor employees with the payoffs in the normal-form game shown below. $\begin{array}{c}\text { Worker }\\\text { Manager}\begin{array}{|l|l|l|} \hline & \text { Work } & \text { Shirk } \\\hline & & \\\text { Monitor } & -1,1 & 1,-1 \\\hline \text { Don't } \\\text { Monitor }& 1,-1 & -1,1\\\hline\end{array}\end{array}$ Management and a labor union are bargaining over how much of a $50 surplus to give to the union.The $50 is divisible up to one cent.The players have one shot to reach an agreement.Management has the ability to announce what it wants first,and then the labor union can accept or reject the offer.Both players get zero if the total amounts asked for exceed $50.Which of the following is a perfect equilibrium?

• A) Management requests $49.99, and the labor union accepts $0.01.
• B) Management requests $25, and the labor union accepts $25.
• C) Management requests $0, and the labor union accepts $50.
• D) None of the preceding answers is correct.

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Definitions:

Variable Expenses

Costs that vary directly with the level of activity or production output, such as raw materials and direct labor.

Break-even Point

The point at which total costs and total revenues are equal, meaning there is no profit or loss.

Variable Expenses

Costs that vary directly with levels of production or sales volume, such as materials and labor.

Fixed Expenses

Recurring costs that do not vary with the volume of production or sales, similar to fixed costs.