Assessment #2: Essay
178.771 Economics
Semester 1 - 2025
To Submit Your Essay
1. Include the WORD COUNT at the end of questions.
2. Convert the essay in PDF FORMAT.
3. Submit the pdf using the STREAM UPLOAD TOOL (no email submission).
4. Separately submit an AI DOCUMENT. (You can use AI collaboration for this assignment following the guidelines in the Stream and the course guide.)
You must address the problems by
1. SHOWING your reasoning step-by-step.
2. RELATING your arguments to concepts/tools studied in this paper.
3. NOT-EXCEEDING the overall 1,000 words limit set for this assignment - this limit does not include any formula, table, graph, and bibliography used.
Note that there is no specific template to follow but, given the questions, I do not expect the assignment to be written in a typical essay format. The responses should relate to the previous part of the question (if any) and a more flowing format is preferred rather than just some bulleted points.
There are 25 Marks attainable.
Problem # Marks
1 15
2 10
TOTAL 25
The examination paper consists of three (3) pages, including this cover sheet.
Question 1 (Total 15 Marks)
Business management and employees regularly renegotiate new employment contracts. To do so, they send their proposals to arbitrators who choose the best proposal and award $1 million to the winning side. Any side can choose to hire an inexpensive lawyer at zero cost but they are ineffective at preparing the proposal. The other option for them is to hire an expensive lawyer at a cost of $150,000 who is effective at preparing the proposal in the best light. If both hire inexpensive lawyers or if both hire expensive lawyers, each side can expect to win about half the time. If only one side hires an expensive lawyer (while the other chooses an inexpensive lawyer), it can expect to win 70 percent of the time. [Hint: Actions here are to submit a proposal assisted by an inexpensive lawyer or to submit one prepared with an expensive lawyer's help.]
a. Diagram this simultaneous-move game connecting with the ideas discussed in the lectures. [2 Marks]
b. Use the technique shown in the lecture to find the Nash equilibrium of the game. [2 Marks]
c. Would the sides want to ban expensive lawyers? Answer this also in light of the ‘category, this game belongs to, as emphasised in the lecture [Hint: Do so by providing examples of alternative games to the one proposed, which share similar characteristics to this game]. [2 Marks]
d. If the management, had to be the first to submit a proposal prepared by an expensive lawyer or a proposal prepared with the help of an inexpensive lawyer, in the negotiation for a new employment contract, how would your predictions of the likely play of this game change from your answer in part (b)? Use an extensive form. game to illustrate this modified game. Discuss the implications of this new game regarding your answer in part (c). What if the labour submit the proposal first? [5 Marks]
e. Which other forms of bargaining and negotiations can you think of, which could lead to alternative predictions of the likely play of the game? [4 Marks]
Question 5 (Total 10 Marks)
Google and Yahoo, a smaller rival, often must select from one of two competing technologies. Yahoo always prefers to select the same technology as Google (because compatibility is important), while Google always wants to select a different technology from Yahoo (because they can then enjoy the benefit of a differentiated product).
a. Describe the pure strategy equilibrium of this game in light of the discussion of the lectures. [2 Marks]
b. What will happen when there are more small firms like Yahoo who are interested to work with Google? [2 Marks]
c. What will happen when there are many small firms like Yahoo who are interested to work with many big firms like Google? [2 Marks]
d. What type of situations (and the associated equilibrium) are observed in the current world (you can choose any field you like)? [4 Marks]