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PracticeMT2FullSolns0

# PracticeMT2FullSolns0 - P 300 A Pcoll = 200 Pcour = 180...

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getting a payo of \$8. This means that the buyer can expect a payo of \$5 if he o ers \$40. Subgame 3: buyer o ers \$60. In this subgame, the seller’s payo from accepting is \$28 dollars while her payo from rejecting is \$0. Therefore, the seller will accept the o er in this case, getting a payo of \$28. This means that the buyer can expect a payo of -\$15 if he o ers \$60. Initial decision: how much to o er? Now that we know the buyer’s payo s from each o er he might make, we can select the best one. Therefore, the buyer o ers \$40, the seller accepts the o er, and the buyer earns \$5. That means of subgame perfect Nash Equilibrium is [(O er \$40), (Reject if o er = \$20, Accept if o er = \$40, Accept if o er = \$60)]. c) Now, assume that the order of the moves is reversed. In the rst stage, the seller can o er the good for \$20, \$40 or \$60, and in the second stage, the buyer can accept or refuse the o er. Draw the new game tree and nd the subgame perfect Nash Equilibrium. Note that the possible outcomes, and therefore the payo s of the game are unchanged from the previous parts. To construct a new game tree, all we need to do is switch the player order.
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PracticeMT2FullSolns0 - P 300 A Pcoll = 200 Pcour = 180...

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