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Question is shown in image below: 1. (7 points) Amey is in the market for a used car, but does not know his cars, so
Question is shown in image below:
1. (7 points) Amey is in the market for a used car, but does not know his cars, so he cannot tell if the car that is offered to him is good (G) or bad (B). He visits a dealer with a large number of used cars on their lot. It is common knowledge that half of the cars on the dealer's lot are good. Amey picks a car at random and offers a price p to the dealer. The dealer knows the quality of the car and may accept or reject Amey's offer. If the dealer rejects, there is no sale and the payoff will be 0 to both. If the dealer accepts, his payoff will be the price 19 minus the value of the car, and Amey's payoff is the value of the car minus the price p. Suppose both Amey and the dealer value a good quality car at $15,000 and a bad quality car at $5,000. (Note that p is chosen by Amey.) (a) (2 points) Set up this game in extensive form as well as in strategic (normal) form. (b) (5 points) Compute all Nash equilibria of this game. Which of your Nash equi- libria are also subgame perfectStep by Step Solution
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