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1. (35 points) Player 1 and Player 2 work together to produce a public good. The value of the good is (1 + 81)(1 +

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1. (35 points) Player 1 and Player 2 work together to produce a public good. The value of the good is (1 + 81)(1 + 32) to each player, where 61 is the effort of player i. The cost of effort ei for player i is %ef, where as > 1. Players choose effort levels simultaneously. a) Solve for the Nash equilibrium of the game when 61 and 62 are both common knowledge. b) Solve for the Bayesian Nash equilibrium when it is common knowledge that 61 = 3, and 02 = 3 with probability g, and 62 = 5 with probability %, but only player 2 observes the actual realization of 62. Which type of player 2 would prefer that player 1's uncertainty about 62 be resolved

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