1. Consider a market for phones. There are many consumers and many firms. Firms can produce phones at varying qualities, with the true value of the phone (denoted P) ranging from 0 dollar to 500 dollars. Suppose for each firm, the marginal cost to produce a P-dollar worth phone is P (e.g., the marginal cost of producing a phone that's worth $200 is $200). Each consumer's willingness to pay for a P-dollar worth phone is 1.3*P (e.g., if a consumer ends up with a phone that's worth $200, she gets a utility of $260).

1a. [10 points] Suppose the true value of phone is observable to the consumer. Compute the possible range of market prices for a P-dollar worth phone.

1b. Suppose the true value of phone is NOT observable to the consumer, so that the consumer has to assume the true value follows a uniform distribution. Show that there is no price at which any phone will be traded on the market.