After years of training, Sara has landed a contract playing professional lacrosse. Eager to leverage her pro status by bringing in endorsements, she asks Jenny MacGuire to be her personal manager. Jenny has offered Sara a choice of two payment plans. Sara can engage Jenny’s services for a flat fee of $100,000. Alternatively, Sara can pay Jenny 15% of all endorsement revenue. Sara estimates that if Jenny expends modest effort ($20,000 worth) in her job, she will generate $600,000 in endorsement revenue for Sara. But if Jenny expends high effort ($50,000 worth), shea bring in $1 million in endorsements. On the day Sara and Jenny are to sign their agreement, Jenny tells Sara, I am 100% dedicated to you, and will always work as hard as humanly possible on your behalf no matter what payment plan you choose. Sara has a choice of payment plans, and Jenny has a choice of effort levels. On a separate sheet of paper, determine the relevant payouts for all the possible outcomes, and draw the extensive form game Sara and Jenny are playing. Required:
a. The equilibrium outcome of this game is .
b. Jenny's promise believable .