Answer to Question #289843 in Microeconomics for Alemu

Question

6) Consider technology adoption decisions of two firms. Firm A has two possible types, either 

high or low costs, with associated probabilities 2/3 and 1/3. Firm A observes its own type, 

but firm B cannot observe it. Graphically, firm A knows which payoff matrix firms are 

playing, while firm B can only assign a probability 2/3 or1/3 to playing the left-hand (right-

hand) matrix.

Answer 1

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