Question 2. I. Solve the following game using subgame perfection. There are four subgame perfect equilibria. It is sufficient to find one. Indicate the solution by placing arrows on branches chosen in equilibrium. (1, 1, 1) g (4, 2, 3) 3a 2a p (0, 1, 2) g (1, 0, 2) 3b P (2, 0, 1) (3, 2, 1) h 1b d (3, 1, 4) 2b S (1, 0, 0) 1c d (2, 0, 2) II. A union values the amount of employment L and the wage level w. The union has preferences over these give by the function: U ( L, w ) = (LtL 2 1 Here, L is the employment level that would have all union members employed. The firm has revenue related to employment according to the function R(L) = VL so that net revenue is "(L, w) = VI - wL. Suppose that the union sets a wage, w, and the firm responds by setting a level of employment (L) taking the wage as given. What wage, w* will arise in equilibrium where the union takes the firms' reaction into consideration