Question: Consider the following adverse selection problem. There are a large numbers of entrepreneurs each endowed with a project. Projects can be of two types: high

Consider the following adverse selection problem. There are a large numbers of entrepreneurs each endowed with a project. Projects can be of two types: high or low value. High value projects are worth H>0 to external investors and Qwith 0

a. Entrepreneurs endowed with low value projects make (weakly) higher profits by selling on the market than those endowed with high value projects.

b.If Q>pH+(1-p)Lthen high quality projects are not traded on the market

c.Low quality projects are always traded when high quality projects are traded, but the reverse is not necessarily true.

d.Low quality projects are only traded if high quality projects are also traded

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