Answer Happy

= Consider a model with asymmetric information (similar to the one covered in the class) where the sellers produce umbrellas of two qualities: a high-quality umbrella (good H) and a low-quality umbrella (good L). The corresponding buyers' valuations (in dollars) are vh = 15 for the good H, and vL = 10 for the good L. The buyers cannot tell the quality before purchasing an umbrella. The productions costs for each seller depend on the quality of the good, and are ch = 12 for H and cu = 11 for L. Each seller can decide which quality of an umbrella to produce. = = 1. Explain carefully whether one of the following equilibria exists (in your explanations, characterize in each case the buyers' beliefs about the quality of the offered goods): (a) Only good H is produced in an equilibrium. (b) Only good L is produced in an equilibrium. (c) One quarter of sellers produce good H and three quarters of sellers produce good L.