Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 8, Problem 10DQ
To determine
Self-interest behavior.
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Suppose it is a well-known fact that among ten-year old Ford F-150s, half the trucks are good and half of them are lemons. Suppose that it is also known to all parties that a good truck is worth $8,000 to current owners and $10,000 to potential buyers. A bad truck, on the other hand, is only worth $1,000 to current owners and $2,000 to potential buyers.
Throughout, assume that buyers are risk-neutral.
4) Suppose that after much haggling, the current owner is willing to let her truck go for $6,000. What is the most likely implication?
a) The truck is a lemon.
b) The buyer is an excellent negotiator.
c) It's a mutually beneficial transaction.
3. Suppose that individuals with a strong enthusiasm for technology are willing to pay $500 now for the latest iPhone, but only $350 if they must wait a year. Normal people are willing to pay $250, and their desire to purchase does not vary with time. Assume for simplicity that there are equal numbers of each customer type (strong enthusiasm and normal), that the MC of the iPhone is $100, ignore the time value of money, and there are only two years. (Hint: With discrete problems consider all the different options and evaluate each of them to determine the optimal strategy. In this case, there are only three prices given and two time periods, so a total of 6 pricing strategies exist but some of them will.)
What is the highest profit level that can be achieved if the price for an iPhone is fixed for both years (uniform pricing)?
What is the highest profit level that can be achieved if the price for an iPhone can be altered across the two years?
Suppose Justine and Sarah are playing the dictator game. Justine is the dictator and has $150 to allocate. Based on
repeated experiments of the dictator game, what amounts, on average, are Justine and Sarah most likely to receive?
Multiple Choice
O
$87 for Justine and $63 for Sarah.
$0 for Justine and $150 for Sarah.
O $75 for Justine and $75 for Sarah.
O $150 for Justine and $0 for Sarah.
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