## Answers

When neither hires a lawyer, each side win half the time. So, payoff of each side = 0.5(3 million) = 1.5 million = 1,500,000

When both hires a lawyer, each side win half the time. So, payoff of each side = 0.5(3 million) - 100,000 = 1,500,000 - 100,000 = 1,400,000

When one side hires a lawyer,

Payoff of the side that hires = 0.8*(3,000,000) - 100,000 = 2,400,000 - 100,000 = 2,300,000

Payoff of the side that does not hire = (1-0.8)*(3,000,000) = 0.2*(3,000,000) = 600,000

M: No lawyer | Lawyer | |

L: No Lawyer | L: $1,500,000 M: $1,500,000 | L: $600,000 M: $ 2,300,000 |

Lawyer | L: $2,300,000M: $600,000 | L: $1,400,000M: $ 1,400,000 |

**hire; hire**

(Given that L hires no lawyer, M's best response is to hire a lawyer.

Given that L hires lawyer, M's best response is to hire a lawyer.

Given that M hires no lawyer, L's best response is to hire a lawyer.

Given that M hires lawyer, L's best response is to hire a lawyer.

So, the Nash equilibrium is for both to hire a lawyer.)