In the village of Los Angelitos, 25% of the farmers are EXPERIENCED farmers and 75% are NEW farmers. Both types of farmers have zero wealth and need a loan of $100 in order to buy the inputs needed to farm. Both types of farmers have no way, other than farming, to earn income; so if they dont farm, their income is zero. The only difference between EXPERIENCED and NEW farmers is as follows: EXPERIENCED farmers have lots of experience and thus know how to protect their harvest against bad weather. An EXPERIENCED farmer always has a good harvest and earns revenue equal to $200. NEW farmers have little experience and thus they dont know how to protect their harvest against bad weather. With 60% probability a NEW farmer will have a good harvest and earn revenue equal to $200. With 40% probability, a NEW farmer will have harvest failure and earn revenue equal to $0. Vince is a moneylender who lives in Los Angelitos. His opportunity cost of money is 0.2 (i.e., he would earn 20% interest if he put the money in a savings account instead of making a loan). Vince offers limited liability loans, so a farmer does not have to repay the loan if he has harvest failure. Since Vince lives in Los Angelitos, he has perfect information about the farming experience of everybody in the village, so he knows who is an EXPERIENCED farmer and who is a NEW farmer.

What is the highest interest rate an EXPERIENCED farmer would be willing to pay for a loan from Vince?

What is the lowest interest rate Vince would be willing to charge on a loan to an EXPERIENCED farmer?

What is the highest interest rate a NEW farmer would be willing to pay for a loan from Vince?

What is the lowest interest rate Vince would be willing to charge on a loan to a NEW farmer?

For next questions, assume that Vince is a monopolist.

What is the equilibrium interest rate Vince would charge to an EXPERIENCED farmer?

In equilibrium, how much expected profit would Vince earn on a loan to an EXPERIENCED farmer?

What is the equilibrium interest rate Vince would charge to a NEW farmer?

In equilibrium, how much expected profit would Vince earn on a loan to a NEW farmer?