M 3 0 M S M G D V D B T 5 X BC EI ONE MY * C G q BI E| 4 + E E A E H I Q 1 MY * C Gg: + V X C @ Archivo | C:/Users/Allison%20Alvarez/Downloads/dfgif.pdf%20(1).pdf E dfgif.pdf (1).pdf 4 19 100% + Case 4: 2 P. Nelson suggests that advertising spending can act as a signal of a product's quality. Consider the following situation: the quality of a company's product can be high (a) or low (b), but consumers cannot directly observe the quality before buying. The unit cost of production is Ca and Cb, respectively. Consumers are willing to buy ONE unit at a maximum price of Ua if they believe it is the high-quality product, and they would buy TWO units at a maximum price of Ub each if they believe it is the low-quality product. Although consumers cannot observe the quality of the product, they do observe the advertising and infer that if a product is advertised it is of high quality, for which they are willing to pay Ua (they infer the opposite if the product is not advertised). ). Show that the following strategy is an equilibrium, a stable 4 position: If the product is of poor quality, the company does not advertise, sets the price at Ub, and sells two units. If the product is of high quality, it advertises it with an advertising expense of A, sets the price Ua, and sells one unit. Assume that the value of A is such that Cb