MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
9th Edition
ISBN: 2810022149537
Author: Baye
Publisher: MCG
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Textbook Question
Chapter 12, Problem 3CACQ
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.
- What is the consumer’s reservation price?
- If your price is $3 and the consumer visits your store, will she purchase the item or continue to search? Explain.
- 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?
- 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?
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