In the used-car market in Sydney there are two types of cars: bad cars and good cars. Owners of the cars know what sort of car they have, but to potential buyer all cars look alike (until after they have already been bought). Owners of bad cars are willing to sell their cars for $1000. Owners of good cars are willing to sell their cars for $1600. Buyers have a maximum willingness to pay for a bad car of $1400 and a maximum willingness to pay for a good car of $2400. Buyers are risk neutral, so they maximise their expected return when considering their purchase. What is the minimum proportion (q*) of good cars in the market such that the owners of the good cars are still willing to sell their cars? A. q* = 0.2 B. None of the other answers are correct. C. a* = 0.4 D. g* = 0.8 E. q* = 0.6
In the used-car market in Sydney there are two types of cars: bad cars and good cars. Owners of the cars know what sort of car they have, but to potential buyer all cars look alike (until after they have already been bought). Owners of bad cars are willing to sell their cars for $1000. Owners of good cars are willing to sell their cars for $1600. Buyers have a maximum willingness to pay for a bad car of $1400 and a maximum willingness to pay for a good car of $2400. Buyers are risk neutral, so they maximise their expected return when considering their purchase. What is the minimum proportion (q*) of good cars in the market such that the owners of the good cars are still willing to sell their cars? A. q* = 0.2 B. None of the other answers are correct. C. a* = 0.4 D. g* = 0.8 E. q* = 0.6
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
Chapter16: Bargaining
Section: Chapter Questions
Problem 16.6IP
Related questions
Question
In the used-car market in Sydney there are two types of cars: bad cars and good cars. Owners of the cars know what sort of car they have, but to potential buyer all cars look alike (until after they have already been bought).
Owners of bad cars are willing to sell their cars for $1000. Owners of good cars are willing to sell their cars for $1600. Buyers have a maximum willingness to pay for a bad car of $1400 and a maximum willingness to pay for a good car of $2400. Buyers are risk neutral, so they maximise their expected return when considering their purchase.
What is the minimum proportion (q*) of good cars in the market such that the owners of the good cars are still willing to sell their cars?
A. q* = 0.2
B. None of the other answers are correct.
C. a* = 0.4
D. g* = 0.8
E. q* = 0.6
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning