Question

The following payoff matrix depicts the possible outcomes for two players involved in a game of volleyball. At this point in the game, the ball has just been hit to Deidra, and she chooses whether to hit right or hit left. At the same time, Ashley chooses whether to jump right (Deidra’s right) or jump left (Deidra’s left). If a player receives a payoff of 1, the player wins the point; if the player receives a payoff of –1, the player loses the point. Use this information to answer the following questions:


How many Nash equilibrium(s) exist in this game?

Ashley Jump right Jump left Hit right Deidra Hit left

a

one

b

two

c

four

d

three

e

zero

Assume that the Welter Company is renting capital and hiring labor such that the bang per buck from each resource is the same. If wages of labor increase, its use of labor ________ and capital ________.

a	increases; increases

b	stays the same; falls

c	falls; falls

d	increases; falls

e	falls; increases

Answer 1

1. When Deidra chooses to Hit right, then Ashley has more pay off in Jump right i.e 1.

And when Deidra chooses to Hit left ,then Ashley has more pay off in Jump left i.e 1.

Similarly,when Ashley chooses to Jump right, then Deidra has more pay off in Hit left i.e 1.

And when Ashley chooses to Jump left ,then Deidra has more pay off in Hit right i.e 1.

By seeing both players best responses , there is no Nash equilibrium. Hence, option(E) i.e zero is correct.

2. Assume that the Welter company is renting capital and hiring labor such that the bang per buck from each resource is the same.If wages of labor increase, its use of labor falls and capital increases. Because it is expensive to hire more labor. Hence, option(E) is correct.