sale. Suppose that each owner of an orange Citrus values it at $12,000; he is willing to part with it for price of at least $12,000, but not lower than this. Similarly, each owner of a lemon Citrus values it $4,000. Suppose that potential buyers are willing to pay more for each type. If a buyer could be con dent that the car he was buying was an orange, he would be willing to pay $15,000 for it; if the car was known lemon, he would be willing to pay $5,000. Suppose that there are many buyers, but a limited number of used cars. What type of used cars lemons or oranges - will be offered for sale in the market, and at what prices?
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- Suppose you run a marketing survey and find you have two types of customers high-value customers willing to pay 16 and low-va consumers willing to pay just 10. Your survey tells you that there are equal numbers of high- and low- value customers. Obviously , have two possible options price high (16) and sell only to the high value group, or price low (10) and sell to everyoneThe costs incurred is 5 per unit and sales only happen to high -value consumers 50 % of the timeWhich price should you choose ? Select the correct response price high price low it depends price both high and lowForty thousand potential customersof a cable TV franchise are each willing to pay $11/month for HBO and $11/month for Cinemax. Twenty thousand potential customers are willing to pay $20/month for HBO and only $5/month for Cinemax. Assume costs are zero. If the franchise sells the two services in a bundle, it should charge1: $312: $253: $224: $205: $184. A model of network externalities. Suppose that there are 50 potential consumers in the market for a new technology that exhibits network effects. There is a uniform distribution of consumers with individual valuations, v, ranging from S1, $2,.., S50. Consumer valuation from consuming the technology is given by vN, where N is the number of consumers adopting the technology. Consumers with purchase the product as long as their valuation is greater or equal to the price, so that the marginal consumer has a valuation such that p3vN. The number of consumers adopting the technology is given by the number of people with valuation greater than y, i.e. N = 50 - v. %3D a) Using the information above, derive the relationship between the price of the product and the number of consumers adopting the product, N. Characterize this relationship – does it reflect a typical market demand curve? b) If the price for the product is $600, find the three equilibrium number of adopters in the market. c)…
- 1.) Suppose an insurance company wants to charge a very healthy individual a premium of $1,200 a year for health coverage. It also wants to charge a less healthy individual a premium of $3,600 a year for health coverage. It is seeking to ascertain from any given customer information regarding his/her health by asking for several pieces of health-related information, such as doctor assessments of the person’s health, history of health-related problems, etc. The opportunity cost of a very healthy person securing a health report is $250 and the opportunity cost of a less healthy person securing a health report is $650. Of the choices below, how many reports should the company request to best ensure its paying the right premium to the right person? a. 6. b. 2. c. 0. d. 14. 2). Reconsider again the previous health insurance question. Suppose that due to some innovations in technology as well as increased efforts to shorten/streamline patient reports as doctors look for ways to…What is the problem of moral hazard?In the used-car market there are good cars and bad cars. Everyone knows that half of the used cars are good and half of them are bad, but only the owner knows exactly whether his particular car is good or bad. If a car is good, it is worth $3000 to its owner but worth $4000 to a potential buyer. A bad car, on the other hand, is worth only $2000 to its owner and $1000 to a potential buyer. A potential buyer has no way of telling whether a particular car is good or bad. However, she is aware of the fact that the seller knows the car's quality. (VI.1) If the price of a car is $2500, what type of car will be offered for sale? Only bad cars/ All cars/ Only good cars/ No car. (choose the right answer) Should a potential buyer buy a car that is being offered for sale at $2500? Yes/ No (choose the right answer) If the price of a car is $3500, what type of car will be offered for sale? Only bad cars/ Only good cars/ All cars/ No car. (choose the right answer) What is the buyer's expected value…
- 2 Scenario Your client, InsureCorp, is an insurance company considering launching an 'income insur- ance' product in the nation of Motherland. Income insurance is a product that fully insures a household against changes in income caused by a major injury or illness. At present, no businesses are selling income insurance products in Motherland. Initial market research suggests that there are 15,000 households in Motherland interested in purchasing income insurance. Your client expects that the fixed cost of launching the income insurance product will be $25,000,000 per year, and that each policy issued to a customer will cost the company an additional $2,000 in sales commissions. 2.1 Your task Your client wants you to analyse the potential market for income insurance and report on the following: What is the maximum price the company can charge a household for an income insurance policy? What is the expected profit (or loss) for the company if it becomes a monopoly provider of income…6. Consumers know that some fraction of all new cars produced and sold in the market are defective. The defective ones cannot be identified except by those who own them. Assume that cars do not depreciate in value with use. Suppose consumers are risk-neutral and value non- defective cars at $10,000 each and defective cars at $6,000 each. e. If consumers are willing to pay $8,000 for a new car, what percentage of new cars are defective? f. If you saw a used car for sale with a price tag of $6,500, would you purchase this car? g. How many used cars for sale in this market will be good cars?In Hayward, there are 100 people who want to sell their used cars. The problem is that nobody except the original owners know which are which. Owners of lemons will be happy to get rid of their cars for any price greater than $200. Owners of peaches will be willing to sell them for any price greater than $1,500 but will keep them if they can't get $1,500. There are a large number of buyers who would be willing to pay $2,500 for a peach but would pay only $300 for a lemon. When these buyers are not sure of the quality of the car they buy, they are willing to pay the expected value of the car, given the knowledge they have. What is the minimum probability for a used car to be a peach such that peaches stay in the market? Ő O 0.33 0.67 0.55 0.5
- 18.7 Suppose 100 cars will be offered on the used-car market. Let 50 of them be good cars, each worth $10,000 to a buyer, and let 50 be lemons, each worth only $2,000. Compute a buyer’s maximum willingness to pay for a car if he or she cannot observe the car’s quality. Suppose that there are enough buyers relative to sellers that competition among them leads cars to be sold at their maximum willingness to pay. What would the mar- ket equilibrium be if sellers value good cars at $8,000? At $6,000?O $300 Question 11 3 pts Consumers are willing to pay a higher price for a brand-name product as opposed to a generic product because O they are willing to pay more for the privilege of watching the firm's commercials. O consumers maximize utility by purchasing the most expensive products. O a brand name provides a signal about a product's quality and reliability. O a brand-name product itself is always of higher quality. 3 pts Question 12 As competitors enter a market, demand becomes more meaning the demand curveA thousand used cars are for sale in Boston. Some of the cars are of good quality (“plums”), and some are not (“lemons”), but the buyer cannot tell the difference between the two qualities; of course the seller knows whether the car is a lemon or a plum. Suppose that consumers are willing to pay $4,000 for a lemon and $6,400 for a plum; and sellers are willing to sell a lemon for $3,500 and a plum for $5,600. a. If there is a 40% chance that a car is a lemon, how many cars will be sold? And what is the maximum consumer surplus in this case. b. If there is a 10% chance that a car is a lemon, how many cars will be sold? And what is the maximum consumer surplus in this case? Kindly answer in detail with all steps and answer should b typed not hand written.