Two Partners Start a Business

question 16

Multiple Choice

Two partners start a business.Each has two possible strategies, spend full time or secretly take a second job and spend only part time on the business.Any profits that the business makes will be split equally between the two partners, regardless of whether they work full time or part time for the business.If a partner takes a second job, he will earn $60,000 from this job plus his share of profits from the business.If he spends full time on the business, his only source of income is his share of profits from this business.If both partners spend full time on the business, total profits will be $200,000.If one partner spends full time on the business and the other takes a second job, the business profits will be $80,000.If both partners take second job, the total business profits are $20,000.

• A)In the only Nash equilibrium for this game, both partners earn $70,000.
• B)In the only Nash equilibrium for this game, one partner earns $100,000 and the other earns $40,000.
• C)In the only Nash equilibrium for this game, both partners earn $100,000.
• D)This game has two Nash equilibria, one in which each partner has an income of $100,000 and one in which each partner has an income of $70,000.
• E)This game has no pure strategy Nash equilibria, but has a mixed strategy equilibrium.

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Definitions:

Liabilities With Priority

Obligations of a business that are given precedence over other debts, especially in the context of bankruptcy or liquidation proceedings.

Order Of Relief

A court order that provides a debtor protection from creditors under bankruptcy proceedings.

Benefit Plans

Programs established by employers to provide various benefits to their employees, such as healthcare, retirement savings, and life insurance.

Unsecured Liabilities

Debts or obligations that are not protected by a security interest or collateral, making them riskier for lenders.