A. Show that in the insurance signalling game, if the consumers have finitely many policies from which to choose, then an assessment is consistent if and only if it satisfies Bayes’ rule. Conclude that a sequential equilibrium is then simply an assessment that satisfies Bayes’ rule and is sequentially rational.
B. 1. Is there a deadweight loss if a firm produces the quantity of output at which price equals marginal cost? Explain.
2. It has been noted that rent seeking is individually rational but socially wasteful. Explain.
3. Make a list of real-world price discrimination practices. Do they meet the conditions posited for price discrimination?
4. Make a list of market monopolies and a list of government monopolies. Which list is longer? Why do you think this is so?