Assignment:
A firm wants to hire a project manager (PM) at a salary of $100,000. 30% of PMs have high ability, and 70% of PMs have low ability. High ability PMs generate $120,000 in revenue and low ability PMs generate $80,000 in revenue. In addition to differences in productivity, high and low ability PMs have different outside offers. If a high ability PM is not hired by the firm, she can work for another company at a salary of $80,000. If the low ability PM is not hired by the firm, she can work for another company for $70,000. High ability PMs are also able to get a Project Management Professional (PMP) certification at a cost of $1,000. Low ability PMs are unable to get a PMP certification (they would fail the test). The firm is not able to observe a PM’s ability, but is able to observe and verify whether or not the PM has a PMP certificate.
(1) What would the extensive form of the game look like?
(2) Why would no one be hired in PBNE if there was no certification process?
Provide complete and step by step solution for the question and show calculations and use formulas.