Question 4: 25 points) Consider a model with asymmetric information similar to the one covered in the class) where the sellers produce umbrellas of two qualities: a high-quality umbrella (good H) and a low-quality umbrella (good L). The corresponding buyers' valuations in dollars) are vh = 15 for the good H, and vL = 10 for the good L. The buyers cannot tell the quality before purchasing an umbrella. The productions costs for each seller depend on the quality of the good, and are ch = 12 for H and cu = 11 for L. Each seller can decide which quality of an umbrella to produce. 1. Explain carefully whether one of the following equilibria exists in your explanations, characterize in each case the buyers' beliefs about the quality of the offered goods): (a) Only good H is produced in an equilibrium. (b) Only good L is produced in an equilibrium. (c) One quarter of sellers produce good H and three quarters of sellers produce good L. 2 2. Provide an example of a costly signal that can help sellers of the good H to distinguish themselves from the sellers of the good L (3-4 sentences)