Use the following information to answer question:
Suppose that you are a manager.You are considering whether or not to monitor employees with the payoffs in the following normal form game.
-Management and a labor union are bargaining over how much of a $50 surplus to give to the union.The $50 is divisible up to one cent.The players have one-shot to reach an agreement.Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer.Both players get zero if the total amounts asked for exceed $50.Which of the following is true?
A)There are multiple Nash equilibria.
B)($25, $25) is a Nash equilibrium.
C)A Nash equilibrium is also a perfect equilibrium.
D)There are multiple Nash equilibria and ($25, $25) is a Nash equilibrium.

Question

Use the following information to answer question:
Suppose that you are a manager.You are considering whether or not to monitor employees with the payoffs in the following normal form game. 
-Management and a labor union are bargaining over how much of a $50 surplus to give to the union.The $50 is divisible up to one cent.The players have one-shot to reach an agreement.Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer.Both players get zero if the total amounts asked for exceed $50.Which of the following is true?
A)There are multiple Nash equilibria. 
B)($25, $25) is a Nash equilibrium. 
C)A Nash equilibrium is also a perfect equilibrium. 
D)There are multiple Nash equilibria and ($25, $25) is a Nash equilibrium.

Quizplus · Accepted Answer

There are multiple Nash equilibria in this game: (0, 50), (50, 0), and ($25, $25). However, none of these are perfect equilibria because they involve strategies that are not credible; for example, if management announces that it wants $50, the labor union will reject the offer because it can get a better payoff by asking for $49.99 instead. Therefore, the Nash equilibrium of ($25, $25) is not only a Nash equilibrium, but it is also the only credible strategy for both players.

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