Business Economics Questions And Answers - Assignment Solution

A.1.

Game theory is an essential tool which is applied to many scenarios and situations without any restrictions or any. The tool of game theory allows the individual to develop models which involve many strategic interactions. The matrix which is also called the payoff matrix is a table which comprises of the outcome of every individual involved in the situation and the outcome which is based on the choice of each player with comparison to all other individuals in the situation. There are three essential factors to look upon in the matrix, the players, the strategies and outcome. Just about everything we do in daily life is a game in the game theory. My small owned business and a competitor nearby nearly owned all the business in the town for getting customized art products which have the annual business of both the companies would be around $50,000 each annually at an estimation, recently I was faced with a dilemma where I planned to run a social media campaign targeted in the population of my town which would cost around $6,000 for each company this option naturally is open to my competitor as well. Let's analyze it further using the game theory tool where we call my company (A) and my competitor (B)

If we both advertise the amount of maximum business would not change and it would cost 6,000 from each pocket increasing the cost which impacts the revenue earned to be reduced by 6,000 each, whereas if a advertises and b doesn’t advertise the business for a will increase by 20,000 and reducing the cost of advertising will give a business of 64,000 total and rest of the business, the remaining business of 30,000 will still be for Company B, vice versa if A doesn’t advertise and B advertises. There will be no change to the situation if both don’t advertise.

A.2.(a)

The real wage is the hourly wage rate which is calculated after considering the inflation, the unexpected increase of the real wage can occur when the wage is raised significantly as. Nominal income is expressed in the money terms it doesn’t reflect the purchasing power of a person according to his wage where on the other hand real income is adjusted as per the inflation rate, in simple words, it can be explained as the income which is the buying power of the nominal income. In the following example, the price of the product represents the inflation, if the price of a product goes up while the nominal income remains the same the real income would decrease, if the price of a product goes down while the nominal income remains, the same the real income would increase if the price of the product is same and nominal income increase the real income would also increase, if the price of the product is same and nominal income decreases the real income would also decrease. Real income = nominal income – inflation using this equation we can see the cause and effect of all three factors on each other. Anticipated inflation is predicted as a steady increase in the price level whereas the unanticipated inflation is unstable which is not expected. In terms of employment, the unanticipated higher inflation diminishes the real wage, whereas the unanticipated lower inflation increases the real wage. Effects of anticipated inflation can be diminished by strategies by employers, creditors, and debtors.