Question 4 Question foura) Alex sells high quality toasters that cost him 2000 while Allan sells low quality toasters that cost him 500.Customers are willing to pay 3500 for high quality toasters and 2000 for low quality toasters. Supposenow there is information asymmetry and customers assume only 50% of toasters in the market are goodquality.ii)How much will each seller make in the presence of information asymmetry with no selleroffering a warrantyiii)Suppose a warranty costs Alex 200t while it costs Allan 600t, what t should Alex set to preventAllan from matching his warranty offer?Page 3 of 5iv)Suppose now a quarter of toasters offered for sale are good quality and three quarters are badquality. How much will the potential buyers be willing to pay in the presence of informationsymmetry

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Alex sells high quality toasters that cost him 2000 while Allan sells low quality toasters that cost him 500. Customers are willing to pay 3500 for high quality toasters and 2000 for low quality toasters. Suppose now there is information asymmetry and customers assume only 50% of toasters in the market are good quality.

Alex sells high quality toasters that cost him 2000 while Allan sells low quality toasters that cost him 500. Customers are willing to pay 3500 for high quality toasters and 2000 for low quality toasters. Suppose now there is information asymmetry and customers assume only 50% of toasters in the market are good quality.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter16: Information, Risk, And Insurance

Section: Chapter Questions

Problem 20CTQ: A website offers a place for people to buy and sell emeralds, but information about emeralds can be...

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