wins, P will Appeal.

Only 3 possible scenarios remain:

1. P wins and D.N.A. at 80%;
2. D wins, P.A. and court C at 15% (75% of 20%)
3. D wins, P.A. and court R at 5% (25% of 20%)
If P refuses the initial offer of l0,000 by D, then the expected payoffs will be:
-for P: 80% x 9000 + 15% x (-9000) + 5% x 6’000 = 6150.
-for D: 80% x (-17000) + 15% x (-2’000) + 5% x (-17000) = -14750.
The expect payoff is (6150;-14’750) if P refuses the initial of D.
If P accepts the initial offer of D, the payoff will be: (6000;-l0000).
P will then refuse the offer because the expected payoff of refusing is higher than the
payoff of accepting (6150>6’000).
Bl) the defendant can improve his position before being sued by offering an
amount that will make the payoff of P higher the expected payoff that P would get
by suing D. The amount that D could offer could be 6151 so that the payoff will
be (6151;-6151). P would accept because it is higher and D surely prefers to have
a payoff of-6151 than having an expected payoff of (-14750). D could offer even
more than 6151, but always lower than 14750 (so at maximum 14749). The best
choice for D is anyway offering 6151 before being sued.
B2) the defendant D could improve his position after being sued by offering an
amount that will make the payoff of P higher than the expected payoff that P
would get by suing D. Considering that P has already paid 4000, the best amount
to be offered is 10151.
P has already paid 4000, the best amount to be offered is 10151. In this way, the payoff
for the parties will be (6151;-10151). P would accept because it is anyway better than the
expected payoff for suing D. And on the other side D would have a better payoff than the
expected one of (-14750).
D should make the offer before being sued because otherwise it has to pay 4000 more in
order to repay the amount that P has already spent for suing.

Exercise 8

N1/1.000=((1.000.000-n1)/1.000)=500
N1=1.000.000-n1+500.000
N1=1.500.000/2=750.000 so the peak for user t=n1/1.000=750.000/1.000=750sec
N2=1.000.000-750.000=250.000 so t for non-peak users in t=250sec

1m=1.000.000
f(TC)=(n1/1.000)*n1 =((1m-1n)/1.000)*(1m-1n)+500*(1m-1n) m.c.m. =1.000
n1^2+1m^2-1mn1-1mn1+n1^2+500.000n1: 2n1^2-2.5mn1+(1.5*10^12)
dTC/dn1=0
4n1-2.5*1.000.000=0 ; 4n1-2.500.000/4=625
N2= 1.000.000-625.000=375.000
N1/1.000+100=((1.000.000-n1)/1.000+500 m.c.m = 1.000
1.000.000-n1 +500.000=n1+100.000
2n1=140.000
N1 =700.000 so N2= 300.000
((1.000.000-n1)/1.000)+500=(n1/1000)+a ; m.c.m =1000
1.000.000-n1 +500.000=n1 +1.000a
1.500.000-2n1 =1.000a
N1 has been calculated in point b)and it is 625.000 so :
a= (1.500.000-(2*625.000))/1.000=250 sec
250 sec *0.01 cent = 2.5 euro

Exercise 9

In the subgame G1, the normal form is:

P G

P (-6,-6) (-1,3)

G (3,1) (-3,-3)

This subgame has two SPNE: (-1,3) and (3,1)

The normal form in subgame G2 is:

P G

C (3,1) (-1,3)

S (4,2) (4,2)

SPNE in this subgame is (4,2), banana know if it chooses c, its pay off would be lower
either way than choosing S, so Banana chooses S.
Between staying in and out, Banana chooses enter, because his pay off will be larger.