Consider the perfectly competitive market for an 'experience" good one whose quality cannot be determined until after purchase. This good can be high quality, q = h, or low quality, q I. Each of the price taking firms in this competitive industry have the following cost func tions, depending on whether they produce high or low quality: the cost of producing low quality is CQ, x) = 7.5x + 3z2 + 27, while the cost of producing high quality is C(I'L, x) lSx+3x2 + 75, where x is the firm's output. 1. (l0pts) Determine the long run competitive equi]ibrium perfirm output, and the associated market price, for a situation in which only the high quality technology is available to the firms. 2. (lopts) Determine the long run competitive equilibrium perfirm output, and the associated market price, when only the low quality technology is available. 3. (2Opts) In a static (singleperiod) model, determine whether either of these can arise in equilibrium given that the firm is free to choose its technology. Explain. 4. (lopts) Under what circumstances does this outcome imply market failure? Explain. 5. (2opts) Now introduce a discount factor, fi = .9, which gives the present value of $1.00 received one period from now. Let the market last an infinite number of periods. Suppose we wish high quality production to arise in equilibrium. Determine the minimum price premium which must be used to ensure firms will not cheat. Explain your work. 6. (2opts) Solve for the price premium associated with = .75, and = .5. 7. (lopts) Explain why these price premia differ.