Consider a market for used bicycles, with high and low quality. Sellers value high quality at $260 and low quality at $95. Buyers value high quality at $345 and low quality bicycles at $135. If the buyer cannot observe type, but is willing to pay a price up to $292.5, this implies the buyer believes that fraction are type high quality. O 0.82 O 0.75 O 0.70 O 0.66

Consider a market for used bicycles, with high and low quality. Sellers value high quality at $260 and low quality at $95. Buyers value high quality at $345 and low quality bicycles at $135. If the buyer cannot observe type, but is willing to pay a price up to $292.5, this implies the buyer believes that fraction are type high quality. O 0.82 O 0.75 O 0.70 O 0.66

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter20: The Problem Of Adverse Selection Moral Hazard

Section: Chapter Questions

Problem 3MC

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