Return to the Tudor-Ford or problem from Section 6.C, when Tudor’s low per-unit cost is 10. Let z be the probability that Tudor actually has a low per-unit cost.
(a) Rewrite the table in Figure 8.10 in terms of z.
(b) How many pure-strategy equilibria are there when z = 0? What type of equilibrium (separating, pooling, or semi separating) occurs when z = 0? Explain.
(c) How many pure-strategy equilibria are there when z = 1? What type of equilibrium (separating, pooling, or semi separating) occurs when z = 1? Explain.
(d) What is the lowest value of z such that there is a pooling equilibrium?
(e) Explain intuitively why the pooling equilibrium cannot occur when the value of z is too low.
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