Af1605 Introduction to Economics
Essay by Charlotte Ip • February 22, 2016 • Essay • 944 Words (4 Pages) • 1,590 Views
Hong Kong Polytechnic University
First Semester 2015/16
AF1605 Introduction to Economics
Problem Set: | (Q5.5,6.1) |
Student Name: | (Ip Cheuk Yan) |
Student ID: | (15064733d) |
Programme enrolled: | (e.g. BD) |
Subject Lecturer: | (Dr Vincent Mok) |
Subject Tutor: | (Dr Vincent Mok) |
Tutorial Group: | (TUT001) |
Tutorial Day and Time: | (Monday 12:30am) |
Number of words: | (899 words) |
AF1605 Introduction to Economics
First Semester 2015/16
Results of Presentation and Written Report
Mark of Question 1: | |
Mark of Question 2: | |
Total mark of report: | |
Grade of report: | |
Grade of presentation: |
Q5.5a[pic 1]
[pic 2]
Give oneself $10,000 bonus | Give the other salesman $30,000 bonus | |
Give oneself $10,000 bonus Give oneself $10,000 bonus Give oneself $10,000 bonus Give oneself $10,000 bonus | ($10,000 , $10,000) | ($40,000 , $0 ) |
Give the other salesman $30,000 bonus | ( $0 , $40,000) | ($30,000 , $30,000) |
There are totally four possible outcomes. They are both Danny and Paul choose (a) $10,000, both Danny and Paul choose (b) $30,000, Danny chooses (a) and Paul chooses (b) so Danny has $40,000 and Paul has $0 and Danny chooses (b) and Paul chooses (a) so Danny has $0 and Paul has $40,000
b) The best choice is both of Danny and Paul give the other salesman $30,000 of bonus so that they can both receive the $30,000 of bonus and this can benefit to both of them. For example, if Danny gives oneself $10,000 while Paul gives the other salesman $ 30,000, Danny can get $(10,000 + 30,000)= $40000, but Paul get $0, so it is not the best choice.
c) Their collusion is likely to fail because both of them may believe the other will choose to give the other salesman $30,000 bonus. However, it would be individually rational for each of them to cheat on a collusive agreement and increase output. For example, Danny believes he can get $3,000 if he follows the collusion or get $40,000 if he does not follow the collusion and choose to give oneself $10,000. Both of them are more willing to get $40,000, so they will not follow their collusion and give oneself $30,000.
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