! solved all parts Problem 3 Consider a firm that employs a worker on a project. If the project succeeds,it generates a revenue of a > 0 for the firm. If it fails, the revenue is zero. The worker0, the project succeeds with1, the project succeeds with probability p1 > p0. The firmdoes not observe the actual effort, only the whether the project succeeds or not. Hence, itcan choose an effort level e = 0 or e = 1. If he chooses e =probability po;if he chooses e =sets a wage schedule such that it pays a wage of ws in case the project succeeds, and of wpin case of failure. Both wages cannot be negative. The worker's utility is given by w – ce,with a > c> 0. The firm maximizes expected profits. Both players are risk neutral. Thegame proceeds as follows: Step 1: The firm sets the wage schedule Step 2: The workerdecides about his effort. Step 3: Nature decides whether the project fails or not (withprobabilities depending on the effort chosen in step 2), and the payoffs are realized.1. Write down the game tree2. Find the players' payoff functions.3. Find the subgame perfect equilibrium.

The game tree describes all of the game's main aspects, including the participants, strategies, and…

Answered: 1. Write down the game tree 2. Find the…

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1. Write down the game tree 2. Find the players' payoff functions. 3. Find the subgame perfect equilibrium.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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