Find the equilibrium price quantity produced and quality

Reference no: EM13330908

Suppose the MC = 1 cost curve is the expected cost of producing an item of average value, but it is composed of a cost curve given by MC = 0.5 for low quality items and MC = 1.5 for high quality items. Producers know the cost curves and can choose whether to produce items of high or low quality. The demand curve is Q = 2 - P for low quality items and Q = 6 - P for high quality items. There is perfect competition but consumers cannot distinguish low quality from high quality items until after they have purchased them. Assuming there is no signaling, find the equilibrium price, quantity produced, and quality level.

Reference no: EM13330908

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