Return to the game of Monica and Nancy in Exercise U10 of Chapter 5. Assume that Monica and Nancy choose their effort levels sequentially instead of simultaneously. Monica commits to her choice of...

Return to the game of Monica and Nancy in Exercise U10 of Chapter 5. Assume that Monica and Nancy choose their effort levels sequentially instead of simultaneously. Monica commits to her choice of effort first. On observing this decision, Nancy commits to her own effort.

(a) What is the subgame-perfect equilibrium to the game where the joint profits are 5m + 4n + mn, the effort costs to Monica and Nancy are m₂
and n₂, respectively, and Monica commits to an effort level first?

(b) Compare the payoffs of Monica and Nancy with those found in Exercise U10 of Chapter 5. Does this game have a first-mover or second-mover advantage?

(c) Using the same joint profit function as in part (a), find the sub game perfect equilibrium for the game where Nancy must commit first to an effort level.