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Problem Set 1 (3 questions) 1

Economics

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Problem Set 1 (3 questions) 1. Amy asks her mother for permission to use the family car. Mother can make one of three possible responses, Yes, Maybe, or No. After she hears her mother's answer, Amy decides whether to take the car or stay home. The payoffs from possible outcomes are as in the table below. Table 1: Payoffs for outcomes Outcome Mother says yes and Amy takes car Mother says yes and Amy stays home Mother says maybe and Amy takes car Mother says maybe and Amy stays home Mother says no and Amy takes car Mother says no and Amy stays home Amy's payoff Mother's payoff 8 3 3 8 5 2 6 5 4 1 1 6 A) Show the extensive form representation of this game between Mother and Amy. B) How many strategies are possible for Mother? How many strategies are possible for the Amy? C) Show this game in strategic form.