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In: Economics

Marge and Homer want to rent a movie but they cannot decide what to watch. Marge...

Marge and Homer want to rent a movie but they cannot decide what to watch. Marge wants to watch a drama, whereas Homer wants a comedy. They decide to choose randomly by playing a game. On the count of three, Marge and Homer show one or two fingers. If the sum of fingers is odd, Marge wins and they rent a drama. If the sum of fingers is even, Homer wins and they rent a comedy. Each has a payoff of 4 for winning and 1 for losing.

  1. Draw the game table.

  2. Find all mixed-strategy Nash equilibria of this game. Explain how you find them clearly.

  3. Calculate expected payoff of each player for the mixed-strategy Nash equilibria you have found

    in part b.

  4. Graph the best response curves of Marge and Homer on a p-q coordinate plane. Mark all Nash

equilibria.

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