You are a University student who must live off-campus in the second year. There are two types of one-bedroom apartment where you prefer to live because it is near the campus. One rents for $400 per month and the other $360. According to the University Students’ Housing Bureau 80 percent of apartments in the area consists of the $400 type while the remaining 20 percent are of the $360 type. You need to visit the apartments to discover the rent. Suppose the first apartment you visit cost $400 and the opportunity cost of your visit is $6 per visit. 1. If you are risk neutral person should you visit another apartment or rent the one you have found. 2. Suppose you visit another apartment and find out that it rents for $400, should you visit another apartment?

You are a University student who must live off-campus in the second year. There are two types of one-bedroom apartment where you prefer to live because it is near the campus. One rents for $400 per month and the other $360. According to the University Students’ Housing Bureau 80 percent of apartments in the area consists of the $400 type while the remaining 20 percent are of the $360 type. You need to visit the apartments to discover the rent. Suppose the first apartment you visit cost $400 and the opportunity cost of your visit is $6 per visit. 1. If you are risk neutral person should you visit another apartment or rent the one you have found. 2. Suppose you visit another apartment and find out that it rents for $400, should you visit another apartment?

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

Chapter6: Simple Pricing

Section: Chapter Questions

Problem 6MC

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ANSWER THIS INTUITIVELY
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