Question

There are 100 used laptop for sale on the market. 39% of them are in good...

There are 100 used laptop for sale on the market. 39% of them are in good condition, and the rest of them are broken, which is the common knowledge to the owners and the buyers. Owners of broken laptops are willing to sell them for $300. Owners of good used laptops are willing to sell them if the price is above $1500 but will keep them if the price is lower than $1500. There is a large number of potential buyers who are willing to pay $2000 for a good laptop and $700 for a broken laptop. Buyers can't tell good laptops from bad, but original owners know. In equilibrium, what could be the maximum price set for a broken laptop to be sold?

The answer is not 1207

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The maximum price that the buyer is willing to pay = (willingness to pay for good laptop)*(probability of the laptop being good) + (willingness to pay for a broken laptop)*(probability of the laptop being broken)

= 2000*39/100 + 700*61/100

= 780 + 427

= 1207

But at this price, owners of good laptops will not be willing to sell as they value their laptop at 1500. Only owners of bad laptops will be willing to sell at this price. Now, since this is common knowledge, the buyer will only accept a maximum price of 700 for the laptop as he knows that the laptop being sold is broken.

Therefore, the maximum price the buyer pays for a broken laptop is 700, his maximum valuation of a broken laptop.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
There are 200 used cars for sale, half of them are good and half of them...
There are 200 used cars for sale, half of them are good and half of them are lemons. Owners of lemons are willing to sell them for $500. Owners of good used cars are willing to sell them for prices above $900 but will keep them if the price is lower than $900. There is a large number of potential buyers who are willing to pay $700 for a lemon and $1,900 for a good car. Buyers can’t tell good...
1. At her neighbor's garage sale, Constance buys 2 living room couches and a coffee table...
1. At her neighbor's garage sale, Constance buys 2 living room couches and a coffee table for $250, which she uses to replace the broken furniture at home. Unbeknownst to Constance, the neighbor still owed money to All Purpose Furniture, Inc., where he had purchased the furniture on credit. If All Purpose informs Constance that she must return the furniture because they have a security interest in the collateral Select one: a. They are partially correct; Constance must pay half...
Question: What is the amount of cash received from the sale of equipment if Horizon Insurance...
Question: What is the amount of cash received from the sale of equipment if Horizon Insurance elects to outsource publishing to G-Art? Use the following case to help determine the answer: Horizon Insurance (HI) was a full-service regional insurance agency that has done all the printing and publishing of its own promotional brochures, newsletters, informational pamphlets, and required regulatory reports. Linda Wolfe, the business manager of the agency, had for some time thought that the firm might save money and...
ECO 101-S70: Final Quiz 2 CHAPTER 3: Demand, Supply and Equilibrium 1. Which of the following...
ECO 101-S70: Final Quiz 2 CHAPTER 3: Demand, Supply and Equilibrium 1. Which of the following could cause a decrease in consumer demand for product X? a.   a decrease in consumer income b.   an increase in the prices of goods which are good substitutes for product X c. an increase in the price which consumers expect will prevail for product X in the future d. a decrease in the supply of product X 2. If two goods are substitutes for...
1. Summarize in a few sentences what Ayers found about pricing strategies in car markets. 2....
1. Summarize in a few sentences what Ayers found about pricing strategies in car markets. 2. Do you think that this is a profit maximizing strategy? Do you think this is an appropriate and reasonable strategy for businesses to undertake it it increases their profits? 3. Can you think of other goods or services that could be - or are - priced the same way? Check out the article on discrimination in coffee shops "Waiting for Good Joe" for some...
INTRO NewForm IT is a seven-year-old IT consulting company founded in 2012 that provides services to...
INTRO NewForm IT is a seven-year-old IT consulting company founded in 2012 that provides services to small businesses in their local and regional area. NewForm employs 83 people, 61 of whom are IT professionals/ consultants. NewForm is struggling financially; it has not met its revenue projections in the last five quarters. NewForm has suffered excessive leadership turnover in the past three years. The original founders sold NewForm in 2015; one of them, James Stanton, remained on as CHRO but sold...
INTRO NewForm IT is a seven-year-old IT consulting company founded in 2012 that provides services to...
INTRO NewForm IT is a seven-year-old IT consulting company founded in 2012 that provides services to small businesses in their local and regional area. NewForm employs 83 people, 61 of whom are IT professionals/ consultants. NewForm is struggling financially; it has not met its revenue projections in the last five quarters. NewForm has suffered excessive leadership turnover in the past three years. The original founders sold NewForm in 2015; one of them, James Stanton, remained on as CHRO but sold...
Please read the article and answear about questions. Determining the Value of the Business After you...
Please read the article and answear about questions. Determining the Value of the Business After you have completed a thorough and exacting investigation, you need to analyze all the infor- mation you have gathered. This is the time to consult with your business, financial, and legal advis- ers to arrive at an estimate of the value of the business. Outside advisers are impartial and are more likely to see the bad things about the business than are you. You should...
In February 2012, the Pepsi Next product was launched into the US market. This case study...
In February 2012, the Pepsi Next product was launched into the US market. This case study provides students with an interesting insight into PepsiCo’s new product process and some of the challenging decisions that they faced along the way. Pepsi Next Case Study Introduction Pepsi Next was launched by PepsiCo into the US market in February 2012, and has since been rolled out to various international markets (for instance, it was launched in Australia in September 2012). The new product...
LEADERSHIP IMPLICATIONS IN COMPLEX PROJECTS: THE BOEING DREAMLINER AND CEO JIM MCNERNEY In defense of criticism...
LEADERSHIP IMPLICATIONS IN COMPLEX PROJECTS: THE BOEING DREAMLINER AND CEO JIM MCNERNEY In defense of criticism of Boeing’s 787 production delays, CEO Jim McNerney explained: We are trying to come up with the strongest set of partnerships we can with the people that supply our major systems and structures. In defense, we are trying to respond to the pressures of governments buying fewer things at lower prices, with less favorable contract terms. And that pressure cannot just stop at Boeing....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT