The manager of a Pittsburgh shop wishes to sell on eBay a used telescope that is in good condition. The manager knows that prospective buyers perceive a 50-50 chance that the telescope is in good condition. If it is, buyers are willing to pay $1,030, but if it is in poor condition, they will pay only $340. What is the average amount a buyer will be willing to pay? Is there a lemons problem? Explain. The average amount that a prospective buyer will be willing to pay is $ (Enter your response as a whole number) Since the value of a used telescope that is in OA poor condition is less than the average amount that a prospective buyer will be willing to pay, there is a lemons problem because only people with telescopes in good condition will be willing to try to sell them on eBay. OB. poor condition is less than the average amount that a prospective buyer will be willing to pay, there is not a lemons problem because only people with telescopes in good condition will be willing to try to sell them on eBay. OC. good condition exceeds the average amount that a prospective buyer will be willing to pay, there is not a lemons problem because only people with telescopes in poor condition will be willing to try to sell them on eBay. OD. good condition exceeds the average amount that dprospective buyer will be willing to pay, there is a lemons problem because only people with telescopes in poor condition will be willing to try to sell them on eBay.
The manager of a Pittsburgh shop wishes to sell on eBay a used telescope that is in good condition. The manager knows that prospective buyers perceive a 50-50 chance that the telescope is in good condition. If it is, buyers are willing to pay $1,030, but if it is in poor condition, they will pay only $340. What is the average amount a buyer will be willing to pay? Is there a lemons problem? Explain. The average amount that a prospective buyer will be willing to pay is $ (Enter your response as a whole number) Since the value of a used telescope that is in OA poor condition is less than the average amount that a prospective buyer will be willing to pay, there is a lemons problem because only people with telescopes in good condition will be willing to try to sell them on eBay. OB. poor condition is less than the average amount that a prospective buyer will be willing to pay, there is not a lemons problem because only people with telescopes in good condition will be willing to try to sell them on eBay. OC. good condition exceeds the average amount that a prospective buyer will be willing to pay, there is not a lemons problem because only people with telescopes in poor condition will be willing to try to sell them on eBay. OD. good condition exceeds the average amount that dprospective buyer will be willing to pay, there is a lemons problem because only people with telescopes in poor condition will be willing to try to sell them on eBay.
Chapter18: Asymmetric Information
Section: Chapter Questions
Problem 18.7P
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Transcribed Image Text:The manager of a Pittsburgh shop wishes to sell on eBay a used telescope that is in good condition. The manager knows that prospective buyers perceive a 50-50
chance that the telescope is in good condition. If it is, buyers are willing to pay $1,030, but if it is in poor condition, they will pay only $340. What is the average amount
a buyer will be willing to pay? Is there a lemons problem? Explain.
The average amount that a prospective buyer will be willing to pay is $. (Enter your response as a whole number)
Since the value of a used telescope that is in
OA poor condition is less than the average amount that a prospective buyer will be willing to pay, there is a lemons problem because only people with
telescopes in good condition will be willing to try to sell them on eBay.
O B.
poor condition is less than the average amount that a prospective buyer will be willing to pay, there is not a lemons problem because only people with
telescopes in good condition will be willing to try to sell them on eBay.
OC. good condition exceeds the average amount that a prospective buyer will be willing to pay, there is not a lemons problem because only people with
telescopes in poor condition will be willing to try to sell them on eBay.
O D. good condition exceeds the average amount that dprospective buyer will be willing to pay, there is a lemons problem because only people with
telescopes in poor condition will be willing to try to sell them on eBay.
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