Question

Every year, management and labor renegotiate a new employment contract by sending their proposals to an arbitrator, who chooses the best proposal (effectively giving one side or the other $1 million). Each side can choose to hire, or not hire, an expensive labor lawyer (at a cost of $300,000) who is effective at preparing the proposal in the best light. If neither hires a lawyer or if both hire lawyers, each side can expect to win about half the time. If only one side hires a lawyer, it can expect to win three fourth, or 0.75, of the time. Use the given information to fill in the expected payoff, in dollars, for each cell in the matrix. (Hint: To find the expected payoff, multiply the probability of winning by the dollar amount of the payoff. Be sure to account for lawyer costs, which are incurred with certainty if a lawyer is hired.) Management (M) No Lawyer Lawyer Labor (L) No Lawyer L: $____ , M: $_____ L: $ ____, M: $_____ Lawyer L: $____ , M: $ ___L: $ ____, M: $____ The Nash equilibrium for this game is for Management to a lawyer, and for Labor to a lawyer.

Answer 1

Answer 0.5 of neither chires a lawyn. then, lach side Can expect to win about halt the time ie. each wins with a probability of o. I se. each wins $ 1000000 x SL 1 10) = $ 5ogoo - and it to both hires lawy us, then also both of them earns $ 50.000 but in that case both will have to pay the fees to the lawy which is & 2 good and hence each will receive a bay 46 of 1$ (599, 30,000) $29.99 $ € 500,000 - 39000) - $ 200.000 of Management wires a lawyu then he will wish with pro bability 0.75 . Hace to he will receive ( $ 1.000 obox 75) = 750,000 the fees to the benefit But the management has to pay the lawys, hence he will earn SO, 000 - 300,000) = $ 450,000 and labor will earn (1-0.75 X 1000,000 $ 259,000 Searted with Camcanner

Similarly, it labor hires a law you to get (0.75 X $ 1.000.000) - 7 he will have to pay the tees to the hence he will earn the benefit of a lav yu then, they will ooo) = $750,000 but e fees to the law ju and ($ 759, 60- $ 300 m) - $450, OD and management will earn 0.25 X Will earn 0.25x love, 600% 1 = $ 250.000 Hence the game table will look like below? Labor management Lawyes no la wyn Lawyer $200,000, $20.00)||$450,000, f 250 mm) | No lawyos (32.58,600,9450,600) 64500, and some Hace et Management choosis Lawyn' than Labor will ch w& No 9 они? et management choosis "No lawyn', Labor will choose 'No lawyn' ! of Labor choosis 'Law quo, then Management will Choose 'No lawyn' et Labor choosu. ' No lawyn' then management will choose 'No law yu'. The Nash equillibrum for this Game is for management to I not hire a lawyes, and for labor to not hire a tabox calaw yoner or (No law yuz No lawyu) = ($500,000, $500 30). Scanner