Two Partners Start a Business

question 21

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 $80,000 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 $100,000.
• B)In the only Nash equilibrium for this game, one partner earns $120,000 and the other earns $40,000.
• C)In the only Nash equilibrium for this game, both partners earn $90,000.
• 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 $90,000.
• E)This game has no pure strategy Nash equilibria, but has a mixed strategy equilibrium.

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Definitions:

Hypothesis

A proposed explanation for a phenomenon, made as a starting point for further investigation.

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The systematic investigation into and study of materials and sources in order to establish facts and reach new conclusions, typically involving controlled conditions to test hypotheses.

Hypothesis

An initial explanation proposed with limited proof intended for further examination and study.