Return to the situation in Exercise S7, where Tudor’s low per-unit cost is 6. (a) Write the normal..

Return to the situation in Exercise S7, where Tudor’s low
per-unit cost is 6.

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Return to the situation in Exercise S7, where Tudor’s low per-unit cost is 6. (a) Write the normal..
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(a) Write the normal form of this game in terms of z, the
probability that Tudor is low price.

(b) What is the equilibrium when z = 0.1? Is it
separating, pooling, or semi separating?

(c) Repeat part (b) for z = 0.2.

(d) Repeat part (b) for z = 0.3.

(e) Compare your answers in parts (b), (c), and (d) of
this problem with part (d) of Exercise U5. When Tudor’s low cost is 6 instead
of 10, can pooling equilibria be achieved at lower values of z? Or are higher
values of z required for pooling equilibria to occur? Explain intuitively why
this is the case.

 

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