Decision of a risk neutral consumer
Course:- Macroeconomics
Reference No.:- EM1314743

Assignment Help
Assignment Help >> Macroeconomics

A 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 consumers perspective, there is an equal chance that a given firms product is reliable or unreliable. The maximum amount this consumer will pay for an unreliable product is $0, while she will pay $50 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 warranty that will protect the consumer? Explain.

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Macroeconomics) Materials
An individual sets aside a certain amount of his income per month to spend on his two hobbies, collecting wine and collecting books. Given the information below, illustrate
In this Assignment, you will demonstrate your knowledge of a theorist who has significantly contributed to the field of ethics in healthcare. This will be accomplished by de
Suppose that the money market is initially in equilibrium and that money supply is then raised. Explain the adjustment toward a new equilibrium interest rate.
The price of all other goods remains constant while the price of beef increases by 4%. You respond by reducing your demand for beef by 2%. Is your demand for beef elastic or
A second fund includes the same three investments, A, B and C, together with a fourth investment D.The weightings of investments A, B and C are as above, and the weighting o
Elucidate how these economic concepts can be used to address IBM's problems and opportunities. Identify which economic and political policies affect your IBM and explain how t
Discuss the sanctions on Russia over Ukraine by US and European countries and Russia's retaliations. Discuss the impacts on US, European countries, and Russian economies.
How is economic growth is measured Which factor of economic growth is the most difficult to measure accurately Make recommendations on how the factor you identified can be m