EBK PRINCIPLES OF MICROECONOMICS (SECON
2nd Edition
ISBN: 9780393616149
Author: Mateer
Publisher: W.W.NORTON+CO. (CC)
expand_more
expand_more
format_list_bulleted
Question
Chapter 17, Problem 4SP
To determine
Answer in Gambler’s fallacy and hot hand fallacy.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Soft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers to set a price that depends on realized value. For example, suppose a sales representative is trying to sell a company a new accounting system that will, with certainty, reduce costs by 10%. However, the customer has heard this claim before and believes there is only a 30% chance of actually realizing that cost reduction and a 70% chance of realizing no cost reduction.
Assume the customer has an initial total cost of $300.
According to the customer's beliefs, the expected value of the accounting system, or the expected reduction in cost, is
.
Suppose the sales representative initially offers the accounting system to the customer for a price of $19.50.
The information asymmetry stems from the fact that the has more information about the efficacy of the accounting system than does the . At this price, the customer purchase the accounting system, since the expected…
Soft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers to set a price that depends on realized value. For example, suppose a sales representative is trying to sell a company a new accounting system that will, with certainty, reduce costs by 10%. However, the customer has heard this claim before and believes there is only a 20% chance of actually realizing that cost reduction and a 80% chance of realizing no cost reduction.
Assume the customer has an initial total cost of $200.
According to the customer's beliefs, the expected value of the accounting system, or the expected reduction in cost, is $____
.
Suppose the sales representative initially offers the accounting system to the customer for a price of $12.00.
The information asymmetry stems from the fact that the ______(sales rep or buyer) has less information about the efficacy of the accounting system than does the ______(sales rep or buyer) . At this price, the…
Soft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers to set a price that depends on realized value. For
example, suppose a sales representative is trying to sell a company a new accounting system that will, with certainty, reduce costs by 20%. However,
the customer has heard this claim before and believes there is only a 20% chance of actually realizing that cost reduction and a 80% chance of
realizing no cost reduction.
Assume the customer has an initial total cost of $500.
According to the customer's beliefs, the expected value of the accounting system, or the expected reduction in cost, is $
Suppose the sales representative initially offers the accounting system to the customer for a price of $60.00.
The information asymmetry stems from the fact that the
has less information about the efficacy of the accounting system
than does the
At this price, the customer
purchase the accounting system, since the expected value of the
accounting…
Chapter 17 Solutions
EBK PRINCIPLES OF MICROECONOMICS (SECON
Knowledge Booster
Similar questions
- Soft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers to set a price that depends on realized value. For example, suppose a sales representative is trying to sell a company a new accounting system that will, with certainty, reduce costs by 10%. However, the customer has heard this claim before and believes there is only a 20% chance of actually realizing that cost reduction and a 80% chance of realizing no cost reduction. Assume the customer has an initial total cost of $100. According to the customer's beliefs, the expected value of the accounting system, or the expected reduction in cost, is s Suppose the sales representative initially offers the accounting system to the customer for a price of $6.00. The information asymmetry stems from the fact that the system than does the value of the accounting system is True At this price, the customer than the price. Instead of naming a price, suppose the sales representative offers to give the…arrow_forwardSoft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers to set a price that depends on realized value. For example, suppose a sales representative is trying to sell a company a new accounting system that will, with certainty, reduce costs by 20%. However, the customer has heard this claim before and believes there is only a 40% chance of actually realizing that cost reduction and a 60% chance of realizing no cost reduction. Assume the customer has an initial total cost of $600. According to the customer's beliefs, the expected value of the accounting system, or the expected reduction in cost, is ____ . Suppose the sales representative initially offers the accounting system to the customer for a price of $84.00. The information asymmetry stems from the fact that the Customer/Sales Rep has less information about the efficacy of the accounting system than does the Customer/Sales Rep . At this price, the customer will/will not…arrow_forwardSoft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers to set a price that depends on realized value. For example, suppose a sales representative is trying to sell a company a new accounting system that will, with certainty, reduce costs by 20%. However, the customer has heard this claim before and believes there is only a 40% chance of actually realizing that cost reduction and a 60% chance of realizing no cost reduction. Assume the customer has an initial total cost of $500. According to the customer's beliefs, the expected value of the accounting system, or the expected reduction in cost, is Suppose the sales representative initially offers the accounting system to the customer for a price of $70.00. The information asymmetry stems from the fact that the system than does the value of the accounting system is At this price, the customer than the price. Instead of naming a price, suppose the ales representative offers to give the customer…arrow_forward
- Soft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers to set a price that depends on realized value. For example, suppose a sales representative is trying to sell a company a new accounting system that will, with certainty, reduce costs by 10%. However, the customer has heard this claim before and believes there is only a 40% chance of actually realizing that cost reduction and a 60% chance of realizing no cost reduction. Assume the customer has an initial total cost of $800. According to the customer's beliefs, the expected value of the accounting system, or the expected reduction in cost, Is Suppose the sales representative Initially offers the accounting system to the customer for a price of $56.00. The Information asymmetry stems from the fact that the has more Information about the efficacy of the accounting purchase the accounting system, since the expected system than does the . At this price, the customer than the price. value of the…arrow_forwardA risk-neutral consumer is deciding whether to purchase a homogeneous product from one of two firms. One firm produces an unreliable product and the other a reliable product. At the time of the sale, the consumer is unable to distinguish between the two firms’ products. From the consumer’s perspective, there is an equal chance that a given firm’s product is reliable or unreliable. The maximum amount this consumer will pay for an unreliable product is $0, while she will pay $100 for a reliable product. a. Given this uncertainty, what is the most this consumer will pay to purchase one unit of this product? b. How much will this consumer be willing to pay for the product if the firm offering the reliable product includes a warranty that will protect the consumer? Explain.arrow_forwardBPO Services is in the business of digitizing information from forms that are filled out by hand. In 2006, a big client gave BPO a distribution of the forms that it digitized in house last year, and BPO estimated how much it would cost to digitize each form. Form Type Mix of Forms Form Cost A 0.5 $3.00 B 0.5 $1.00 The expected cost of digitizing a form is . Suppose the client and BPO agree to a deal, whereby the client pays BPO to digitize forms. The price of each form processed is equal to the expected cost of the form that you calculated in the previous part of the problem. Suppose that after the agreement, the client sends only forms of type A. The expected digitization cost per form of the forms sent by the client is . This leads to an expected loss of per form for BPO. (Hint: Do not round your answers. Enter the loss as a positive number.)arrow_forward
- Shimadzu, a manufacturer of precise scientific instruments, relies heavily on the efforts of its local salespeople. Selling an instrument requires either luck, high effort, or some combination of the two. A salesperson who chooses to work hard (put in high effort) has a 40 percent chance (probability of 0.4) of selling an instrument in a given year while a salesperson who chooses to slack off (put in low effort) has a 20 percent chance (probability of 0.2) of making a sale. Practically no one manages to sell more than one instrument in a single year. Contracts for salespeople are designed on a year-by-year basis. Sales staff members do not mind risk; they choose employers based only on expected wage and the disutility of effort. Disutility of effort is equivalent to $20,000 per year if they work hard and $0 if they slack off. Even if a salesperson slacks off, he or she requires a salary of at least $50,000 not to seek alternate employment. (So, the worker's net payoff in alternative…arrow_forwardPortsmouth Bank has foreclosed on a home mortgage and is selling the house at auction. There are three bidders for the house, Emily, Anna, and Olga. Portsmouth Bank does not know the willingness to pay of these three bidders for the house, but on the basis of its previous experience, the bank believes that each of these bidders has a probability of 1/3 of valuing it at $600,000, a probability of 1/3 of valuing at $500,000, and a probability of 1/3 of valuing it at $200,000. Portsmouth Bank believes that these probabilities are independent among buyers. If Portsmouth Bank sells the house by means of a second- bidder, sealed- bid auction (Vicktey auction), what will be the bank's expected revenue from the sale?arrow_forwardAn individual has the utility function U(I) = I^(1/2), where I is their net income. (Note that I to the exponent/power of 1/2 is the same as the square root of I.) The individual starts with $1600 in income. The individual has a 20% probability of being very sick, 30% probability of being slightly sick, and 50% probability of being healthy. If the individual is sick, they lose net income because they need to pay healthcare costs. The healthcare costs are $1600 if they are very sick, $700 if they are slightly sick, and $0 if they are healthy. Please use this information for the following parts of this question unless otherwise specified. What is the individual's expected utility? Suppose a health insurance company offers the individual a full insurance contract. What is the actuarially fair, full insurance premium for this individual? What is the individual's expected utility if they purchase a full insurance contract at the actuarially fair, full insurance premium?arrow_forward
- First Fiddler's Bank has foreclosed on a home mortgage and is selling the house at auction. There are three bidders for the house, Ernie, Teresa, and Marilyn. First Fiddler's does not know the willingness to pay of these three bidders for the house, but on the basis of its previous experience, the bank believes that each of these bidders has a probability of 1/3 of valuing it at $600,000, a probability of 1/3 of valuing at $500,000, and a probability of 1/3 of valuing it at $200,000. First Fiddler's believes that these probabilities are in de pendent among buyers. If First Fiddler's sells the house by means of a second- bidder, sealed- bid auction (Vickrey auction), what will be the bank's expected revenue from the sale? (Choose the closest option.) The closest option is 448, 148. Please explain in details thank you.arrow_forwardConsider a worker whose utility is equal to the amount of dollars she has (U = $) and who can earn $100 a day as a bank teller. However, she takes a job as a worker in a firm that produces shirts. She and her coworkers are monitored at random by their employer to see if they are exerting a target level of effort of e* = 15 units. Assume that the probability of any worker being monitored is p. Also assume that e* is the same level of effort the worker would have to exert as a bank teller. If she is monitored and her employer finds that she is exerting at least 15 units of effort, she is paid > $100. If she is caught putting in less than 15 units of effort, she is fired on the spot but given severance pay of w < w. Say that she suffers a disutility of effort of $2, in monetary terms, for every unit of effort she exerts, so that the dollar cost of exerting the target level of effort of e* is - 2e*. (If she chooses to exert a lower level of effort than e*, we can assume that she will not…arrow_forwardActuaries perform the crucial task of estimating the time paths and probability distributions of costs and revenues for different insurance contracts. Becoming an actuary takes several years, and involves passing a series of rigorous examinations given either by the Society of Actuaries or by the Casualty Actuarial Society. Usually, the individual works for an insurance company while studying for the exams, and the company gives the individual time off to study for the exams. Passing an exam usually results in a significant pay increase. a) Do actuaries have general or firm-specific human capital? b) Who “pays for” the worker’s time off to study for the exams? Choose one answer and explain. · the worker does, by accepting a lower salary · the firm does, to invest in the worker’s human capital c) Why does the individual get a pay increase after passing each exam? Why not evaluate the employee once per year, like many companies do?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning