Category: Economics

Acquiring a company through the purchase of shares on the open market and against the will of the target company’s existing management is called a ”hostile takeover”. Such in- vestors were known as “raiders”. All this was fictionalized in the movie Wall Street, with Michael Douglas portraying the raider Gordon Gekko, who famously espoused “Greed is good.” The time was full of jocular jargon, as management could consume a “poison pill” by taking on a costly financial structure that would make it difficult to consummate a hostile takeover. In some cases, a raid could be fought against by buying a raider’s shares back at a premium; this tack became known as “greenmail,” a takeoff on blackmail. To get a gist of the strategizing that occurred between a raider and management, consider the game below:
N= {Raider,Management}
(Do not Buy),(Buy, Greenmail),(Buy, No Greenmail,Take Over), (Buy,No Greenmail,Do not Takeover) are the terminal histories.
P(∅) = Raider, P(h) = Management for non-terminal history h= {Buy}, and P(h′ ) = Raider for non-terminal history h′ = {Buy,NoGreenmail}
Preferences over the terminal histories are: (Buy,Green Mail) ≻Raider (Do Not Buy) ≻Raider (Buy, No Green Mail, Takeover) ≻Raider (Buy, No Green Mail, No Takeover)
Write down actions for each player.
Draw the extensive form of the game.
Find the Pure Strategy Nash Equilibrium of the game
Find the Subgame Perfect Nash Equilibrium of the game.
Are PSNE and SPNE the same? If not, explain why.

Acquiring a company through the purchase of shares on the open market and against the will of the target company’s existing management is called a ”hostile takeover”. Such in- vestors were known as “raiders”. All this was fictionalized in the movie Wall Street, with Michael Douglas portraying the raider Gordon Gekko, who famously espoused “Greed is good.” The time was full of jocular jargon, as management could consume a “poison pill” by taking on a costly financial structure that would make it difficult to consummate a hostile takeover. In some cases, a raid could be fought against by buying a raider’s shares back at a premium; this tack became known as “greenmail,” a takeoff on blackmail. To get a gist of the strategizing that occurred between a raider and management, consider the game below:
N= {Raider,Management}
(Do not Buy),(Buy, Greenmail),(Buy, No Greenmail,Take Over), (Buy,No Greenmail,Do not Takeover) are the terminal histories.
P(∅) = Raider, P(h) = Management for non-terminal history h= {Buy}, and P(h′ ) = Raider for non-terminal history h′ = {Buy,NoGreenmail}
Preferences over the terminal histories are: (Buy,Green Mail) ≻Raider (Do Not Buy) ≻Raider (Buy, No Green Mail, Takeover) ≻Raider (Buy, No Green Mail, No Takeover)
Write down actions for each player.
Draw the extensive form of the game.
Find the Pure Strategy Nash Equilibrium of the game
Find the Subgame Perfect Nash Equilibrium of the game.
Are PSNE and SPNE the same? If not, explain why.

➤ Why do entry and exit drive economic profit to zero in the long run for monopolistic competition but not for monopoly?
In monopolistic competition free entry erodes short-run profits because rival firms introduce close substitutes, shifting demand for each firm left until price equals average cost. A monopoly faces barriers to entry, so rivals cannot eliminate profits. The monopolist can sustain positive economic profit since market power and entry barriers persist.

The gross domestic product (GDP) of the United States is defined as the all in a given period of time.Based on this definition, indicate which of the following transactions will be included in (that is, directly increase) the GDP of the United States in 2022.
Scenario
2022 GDP
Included
Excluded
Bubble Brew Cafe, a U.S. boba tea company, produces a classic milk tea at its location in Manhattan on January 14, 2022. It sells the tea to a customer immediately.
Yeast Crafters, a U.S. yeast company, produces brewer’s yeast at a plant in Wisconsin on September 25, 2022. It sells the brewer’s yeast to Hoptopia Brew Works for use in the production of a new beer that will be made in the United States in 2022. (Note: Focus exclusively on whether production of the brewer’s yeast increases GDP directly, and ignore the effect of production of the new beer on GDP.)
The Federal Emergency Management Agency (FEMA) deposits funds into Mike’s checking account to help pay for his hurricane-related expenses.
Du Belgique Air, a Belgian household appliance company, produces a air fryer at a plant in New York on December 9, 2022. A chef-in-training buys the air fryer on December 24.
Using ghost peppers from a garden on your Mississippi property, you make hot sauce in 2022. Similar sauces sell for $6 in a grocery store.
Sakura Technologies, a U.S. gaming company, produces a gaming controller at a plant in Japan on March 27, 2022. Sakura Technologies imports the gaming controller into the United States on May 18, 2022.

➤ How do I determine profit and plot profit points on the graph?
Find profit at each quantity by subtracting total cost from total revenue: Profit(Q) = TR(Q) − TC(Q). Do this for Q = 0…7 and plot the results as green triangles. The profit-maximizing quantity is where the vertical gap between TR and TC is largest; negative values indicate losses plotted below the axis.

Read Eye on FiscalStimulus. From the peak in 1929 to the Great Depression trough in 1933, government tax revenues fell by 1.9 percent of GDP and government expenditure increased by 0.3 percent. Real GDP fell by 25 percent. Compare and contrast this experience with the fiscal policy that accompanied the 2008-2009 recession. What did fiscal policy do to moderate the last recession that was largely absent during the Great Depression?
Part 1
Fiscal policy in 2009 was ______ fiscal policy during the Great Depression. The American Recovery and Reinvestment Act of 2009 was a ______ fiscal stimulus package.
A. more expansionary than; $787 billion
B. less expansionary than; $787 billion
C. less expansionary than; $7 billion
D. equally expansionary as; $787 billion
E. more expansionary than; $7 billion
Part 1
During 2009, discretionary outlays increased by ______ of GDP and discretionary revenues decreased by ______ of GDP.
A. a bit less than 1 percent; about 2 percent
B. a bit less than 1 percent; about 0.5 percent
C. 10 percent; about 5 percent
D. more than 4 percent; about 2.5 percent
E. 5 percent; about 2.5 percent
Part 2
During 2009, automatic outlays increased by ______ of GDP and automatic revenues decreased by ______ of GDP.
A. 3; about 0.5 percent
B. more than 4 percent; about 10 percent
C. more than 4 percent; about 2.5 percent
D. a bit less than 1 percent; about 0.5 percent
E. 10 percent; about 2.5 percent

REI in the AmericasNo other attempt at regional economic integration comes close to the EU in its boldness or its potential implications for the world economy, but significant attempts at regional economic integration have been made in the Americas.
The most notable was the North American Free Trade Agreement, which was superseded by the United States–Mexico–Canada Agreement (USMCA) in early 2020.
In addition to NAFTA/USMCA, several other trade blocs exist in the Americas, the most significant of which appear to be the Andean Community and Mercosur.
When a business is considering a particular nation as a market or site for investment, a key consideration will be whether the country participates in regional economic integration. The firm needs to understand what is happening in that trade bloc and the effect it will have on the firm’s strategy and operations.
The creation of a single market through regional economic integration offers significant opportunities because markets that were formerly protected from foreign competition are increasingly open. Opportunities arise from the inherently lower costs of doing business in a single market. Even after the removal of barriers to trade and investment, differences in culture and competitive practices often limit the ability of companies to centralize production. A major threat to businesses is that with lowered trade barriers, the business environment can become even more competitive. Firms can also be shut out of markets if they do not have a local presence.

Two firms are planning to sell 10 or 20 units of their goods. The payoff matrix illustrated at right shows profits when the firms produce simultaneously, the first game tree shows profits when Firm 1 decides how much to produce first, and the second game tree shows profits when Firm 2 decides how much to produce first.
How does your analysis change if the government imposes a lump-sum franchise tax of $80 on each firm? If the government imposes a lump-sum franchise tax of $80 on each firm, then
A.
each firm in each game will now have a dominant strategy leading to each Nash equilibria.
B.
at least one firm will shut down and produce nothing in each game at the Nash equilibria.
C.
each firm will produce more output in each game at the Nash equilibria.
D.
the Nash equilibria for the games will not be affected.
E.
the games will no longer have Nash equilibria.
How would your analysis change if the firms have an additional option of shutting down and avoiding the lump-sum tax rather than producing 10 or 20 units and paying the tax? If firms have the option of shutting down and avoiding the lump-sum tax, then
A.
profits for each firm for each game will not be affected.
B.
an additional column and row will be added to each game for each firm.
C.
each firm in each game will now have a dominant strategy.
D.
the Nash equilibria for the games will not be affected.
E.
it will no longer be possible for each firm to produce 10 or 20 units of output in each game.