Answered: Expected benefits 30 and costs 28 EB 26…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Your store sells an item desired by a consumer. The consumer is using an optimal search strategy; the accompanying graph shows the consumer’s expected benefits and costs of searching for a lower price. a. What is the consumer’s reservation price? b. If your price is $3 and the consumer visits your store, will she purchase the item or continue to search? Explain. c. Suppose the consumer’s cost of each search rises to $16. What is the highest price you can charge and still sell the item to the consumer if she visits your store? d. Suppose the consumer’s cost of each search falls to $2. If the consumer finds a store charging $3, will she purchase at that price or continue to search?

Expected
benefits
30
and
costs
28
EB
26
24
22
20
18
16
14
12
10
6.
4
Price
3
4
6.
2.

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