Could you please answer part C?What will Celia’s first-order condition be in step 1? Your answer should bean expression that involves D Consider the following steps1. Celia chooses how much care, z = [0, 1], to take in programming her robot.This effort costs her z²/2.2. Nature chooses whether the robot steps on Peter's pet salamander, leadingto emotional harm to Peter of H> 0 (with probability 1-x). If the robotdoes step on the salamander then there is a chance of that Celia will beidentified as the culprit.• If there is no accident (the salamander is not stepped on), then Celia'spayoff is V - r²/2. Peter and Luke both get zero.• If there is an accident, but Celia is not identified as the culprit, thenCelia gets V-²/2. Peter gets -H. Luke gets zero.• If there is an accident, and Celia is identified as the culprit, then Luke(the judge) decides a level of compensation D € R+ for Celia to payPeter. Celia gets V-2²/2-D. Peter gets D-H. Luke gets - (3H-D)².Now answer the following questions.a) Draw a game tree to represent this model.b) Write down Celia's expected payoff when she chooses x in step 1.c) What will Celia's first-order condition be in step 1? Your answer should bean expression that involves D.d) What is Luke's first-order condition? What decision rule will Luke follow instep 3?e) Now substitute the equilibrium expression for D that you obtained in ques-tion (d), into Celia's condition that you obtained in (c).f) Now we turn to social optimality rather than equilibrium. Consider thevalue judgement that the optimal level of care is the one that maximises theexpected sum of Celia's and Peter's payoffs. According to this approach, wecan ignore Luke's payoffs (as well as any payoff to the salamander or therobot) when considering social optimality. Write down this expected sum.

The first-order condition (FOC) is a necessary condition for an optimization problem to have a local…

Answered: c) What will Celia's first-order…

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c) What will Celia's first-order condition be in step 1? Your answer should be expression that involves D.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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