12 with probability 0.6 C2 ={ ' .. 8 Wlih probability 0.4 Question 1(a): Solve for the above Cournot-Nash equilibrium with asymmetric information with Sarah as a high cost supplier (C2 = 12 unknown to Joe) Question 1(b): Solve for the above Cournot-Nash equilibrium with asymmetric information with Sarah as a low cost supplier (C2 = B unknown to Joe) Question 1(c): Solve for the above Cournot-Nash equilibrium with complete information with Sarah as a high cost supplier (C2 = 12 known to Joe) Question 1(d): Solve for the above Cournot-Nash equilibrium with complete information with Sarah as a low cost supplier (C2 = B) known to Joe) Question 1(e): If Sarah is a low cost supplier, what is the maximum she would be willing to spend to convince Joe of her cost ? 4) You have seen how asymmetric information Can reduce the average quality of products sold in a market, as low-quality products drive out high-quality products. For those markets in which asymmetric information is prevalent, would you agree or disagree with each of the following? Explain briefly: a. The government should subsidize Consumer Reports. b. The government should impose quality standards e.g., firms should not be allowed to sell low-quality items. (2. The producer of a high-quality good will probably want to offer an extensive warranty. d. The government should require all firms to offer extensive warranties. 5) Two used car dealerships compete side by side on a main road. The first, Harry's Cars, always sells high-quality cars that it carefully inspects and, if necessary, services. On average, it costs Harry's $8,000 to buy and service each car that it sells. The second dealership, Lew's Motors, always sells lower-quality cars. On average, it costs Lew's only $5,000 for each car that it sells. If consumers knew the quality of the used cars they were buying, they would pay $10,000 on average for Harry's cars and only $7,000 on average for Lew's cars. Without more information, consumers do not know the quality of each dealership's cars. In this case, they would figure that they have a 50-50 chance of ending up with a high- quality car and are thus willing to pay $8,500 for a car. Harry has an idea: He will offer a bumper-to-bumper warranty for all cars that he sells. He knows that a warranty lasting Y years will cost $500Y on average, and he also knows that if Lew tries to offer the same warranty, it will cost Lew $1,000Y on average