ti Question 2 (14 pts.) to d Consider the simultaneous move game between a taxpayer and a tax inspector. The taxpayer chooses whether or not to underreport his taxable income. The tax auditor chooses whether or not to audit the income report. The payoffs are given in the following matrix, where the first number in each cell denotes the taxpayer's payoff and the second number is the tax inspector's payoff: Y. th Truthful report Underreport Audit 100, -10 Y,5 No audit 100, 10 150,T a) (3 pts.) Calculate the range of values of (Y/T), for which (Undereport, No audit) is a pure strategy Nash equilibrium. Show ALL STEPS. b) (3 pts.) Calculate the optimal probability of Underreport p' that could support a mixed strategy Nash equilibrium. Show ALL STEPS. c) (2 pts.) Calculate the range of values of (Y,T), for which the optimal probability of Underreport p' supports a mixed strategy Nash equilibrium. Show ALL STEPS. d) (2 pts.) Briefly explain why your answers in parts a) and c) are important for determining the tax fraud crackdown strategy of a revenue agency. 2 ti Question 2 (14 pts.) to d Consider the simultaneous move game between a taxpayer and a tax inspector. The taxpayer chooses whether or not to underreport his taxable income. The tax auditor chooses whether or not to audit the income report. The payoffs are given in the following matrix, where the first number in each cell denotes the taxpayer's payoff and the second number is the tax inspector's payoff: Y. th Truthful report Underreport Audit 100, -10 Y,5 No audit 100, 10 150,T a) (3 pts.) Calculate the range of values of (Y/T), for which (Undereport, No audit) is a pure strategy Nash equilibrium. Show ALL STEPS. b) (3 pts.) Calculate the optimal probability of Underreport p' that could support a mixed strategy Nash equilibrium. Show ALL STEPS. c) (2 pts.) Calculate the range of values of (Y,T), for which the optimal probability of Underreport p' supports a mixed strategy Nash equilibrium. Show ALL STEPS. d) (2 pts.) Briefly explain why your answers in parts a) and c) are important for determining the tax fraud crackdown strategy of a revenue agency. 2