Question 1: McGee's House. If McGee has a house built on his lot, he obtains a surplus of v. A contractor's cost of building the house is c. The contractor promises to build the house for a price of p, where v > p > c > 0. If the promise is not an enforceable contract, and the players move simultaneously, they have the following payoffs: Contractor Build Don't Build Pay V-p , 17-0 30.19 MCGBB Don't Pay v , -c 0, 0 g Questions: A) Compute the Nash equilibrium in this game. Is this outcome efcient? B) Consider a sequential version of the game in which the contractor's decision of whether or not to build comes rst, and second McGee makes the decision of whether or not to pay. Draw out the diagram and note the payoffs for this sequential game. Compute the subgame equilibrium. C) Consider an alternative sequential version of the game in which McGee moves first, and then the contractor moves. Draw out the diagram and note the payoffs for this sequential game. Compute the subgame equilibrium. D) Return to the simultaneous game, but suppose the promise is part of an enforceable contract. Specically, suppose the contract species penalties for breach for McGee (Bm) if he doesn't pay and for the contractor (BC) if it doesn't build: Contractor Build Don't Build Pay 12}? , 190 8619 , pBc MCGBB Don't Pay 123,\