2. Consider the following model of the credit market: A borrower needs to invest W + L = I in a high-yield technology, where W denotes hislher initial wealth and L hislher requested loan. The source of capital market imperfection is ex post moral hazard. Namely, once the return 0(W + L) is realized, the borrower can either repay immediately, or hefshe can stall. Stalling revenues away from the lender has a cost to the borrower (who has to keep ahead of the lender), and let this cost be a fixed propertion 'r of total revenues. Finally, whenever the borrower defaults on his/her repayment obligation, the lender may still invest effort into debt collection. Specifically, assume that a lender who incurs a non-monetary effort cost L . C (,0) has probability p of collecting her due repayment r - L. a. Show that anticipating a monitoring effort p from the lender, the borrower's payoff if default is (explain the terms): 0(1 T)(L + W) prL, Write down the condition such that the borrow will decide not to (strategically) default. b. Show that this implies a limit on how much the lender will be willing to lend at a fixed p. What happens to this limit when productivity of capital 0 goes up and when the interest rate goes down? Give intuitions for your results