Graduate Business Administration 509

MANAGERIAL DECISION MAKING
Fall 2003
 
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Answers to Recommended Problems

Chapter 16

6.  a.  RV = reservation value

Right-to-strike

RVUMW (Buyer) = $30 M

RVProducers (Seller) = $50 M

=> No zone of agreement

Open up non-mining jobs

RVUMW (Seller) = $20 M

RVProducers (Buyer) = $60 M

=> Zone of agreement = $20 M - $60 M

=> Size of Z.O.A. = $40 M = Total gain

"Payment" for opening up non-mining jobs will be in the form of a wage increase, which should be from $0.50 - $1.50 an hour

b.  It's now not possible to "pay" to open up the non-mining jobs, so the answer in (a) is not possible.  However, if both issues were adopted, the UMW would have a gain of $10 M ($30 M - $20 M) and the producers would have a gain of $10 M ($60 M - $50 M).  The deal would be accepted because each side would have a gain, for a total of $20 M.

10.

Claim (by A)

 Amount Probability Expected Profit
55% $110,000 0.90 $99,000
60% $120,000 0.85 $102,000
65% $130,000 0.80 $104,000

The optimal offer is 65% to A, 35% to B.