Wanda works as a waitress and consequently has the opportunity to earn cash tips that are not reported by her employer to the Internal Revenue Service. Her tip income is rather variable. In a good year (G), she earns a high income, so her tax liability to the IRS is $5000. In a bad year (B), she earns a low income, and her tax liability to the IRS is $0. The IRS knows that the probability of her having a good year is 0.6, and the probability of her having a bad year is 0.4, but it doesnt know for sure which outcome has resulted for her this tax year.

In this game, first Wanda decides how much income to report to the IRS. If she reports high income (H), she pays the IRS $5000. If she reports low income (L), she pays the IRS $0. Then the IRS has to decide whether to audit Wanda. If she reports high income, they do not audit, because they automatically know theyre already receiving the tax payment Wanda owes. If she reports low income, then the IRS can either audit (A) or not audit (N). When the IRS audits, it costs the IRS $1000 in administrative costs, and also costs Wanda $1000 in the opportunity cost of the time spent gathering bank records and meeting with the auditor. If the IRS audits Wanda in a bad year (B), then she owes nothing to the IRS, although she and the IRS have each incurred $1000 auditing cost. If the IRS audits Wanda in a good year (G), then she has to pay the $5000 she owes to the IRS, in addition to her and the IRS each incurring the cost of auditing.

Question 7. Based on the strategicform game matrix of this game, what are the pure strategy Nash equilibria? Group of answer choices There is no pure strategy Nash equilibrium. (HL, N) (LL, A) (HL, A) (LL, N)