perfect information on all cars

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter9: Decision Making Under Uncertainty
Section9.5: Multistage Decision Problems
Problem 19P
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Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for poor quality used cars is $10,000. Assume a potential used car buyer has imperfect information as to the condition of any given used car. Assume this potential buyer believes the probability a given used car is good quality is .60 and the probability a given used car is low quality is .40. Assume the seller has perfect information on all cars in inventory.

If the seller sells the buyer a good quality car, what is the net-benefit to the seller?

a. A net gain of $4,000.
b. A net gain of $20,000.
c. A net loss of $4,000.
d. A net loss of $10,000.
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