Use the following to answer question:
Figure 16.3
-(Figure 16.3) What is the equilibrium in this principal-agent game?
A) (800 , 120)
B) (540 , 210)
C) (700 , 150)
D) (600 , 80)

Question

Use the following to answer question:
Figure 16.3 
-(Figure 16.3) What is the equilibrium in this principal-agent game?
A) (800 , 120) 
B) (540 , 210) 
C) (700 , 150) 
D) (600 , 80)

Quizplus · Accepted Answer

In the principal-agent game represented in Figure 16.3, the equilibrium occurs at the intersection of the best response functions of the principal and the agent. Thus, the equilibrium is at point (700, 150), which is the intersection of the red and blue lines. Both the principal and the agent have best responses at this point, as any deviation from this point would lead to a lower payoff for the deviating player. Therefore, the best choice is C.

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