3.4 Management and union representatives at a firm are negotiating wages. They were presented with the following independent offers. If both concede, they “split the difference” so that the union will receive €100 as the wage rate for its members and the firm will gain a profit of €5,000. If the union concedes and the firm holds out, the union will get a €50 wage rate and the firm’s profit will be €7,000. If the union holds out and the firm concedes, the union gets €150 and the firm enjoys €4,000. If both sides hold out, a strike occurs and there will be no wages or profits during the strike.

a. Use the information to construct a payoff matrix for the union and the firm.

b. What is the dominant strategy for the union and the firm? Explain.

c. Based on your response to the previous question, what is the Nash equilibrium for this game? Explain.

d. Explain whether the strike outcome a stable one.