- PROBLEM 3: This is Mas-Collel, 13.C.6. Let us assume the following condition: pall —(1 + r) > pall — (1 + r) > 0. Now, following this problem in the book: (i) Find the level of R, = 1, 2) in a separating equilibrium. (ii) Find the level of R in a pooling equilibrium.
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(iii) How a separating equilibrium will look like in case that the bank can also offer a new contract in which the entrepreneur is required to contribute a fraction x of the one dollar initial outlay. Assume that the entrepreneur can get this money at an interest rate p slightly higher than r. (Else, assume that the entrepreneur has the cash.)
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