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

Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
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
How do people earn income Should you just consider what you want to do without considering what others' value, especially prospective employers Who best determines what to d
A company operates plants in both the United States(Where capital is relatively cheap and labor is relatively expensive) and Mexico(Where labor is relatively cheap and capit
The purpose was to boost GDP through consumer spending. Can you find any evidence of its effectiveness? What about the tax rebate for new home purchases? Cash for Clunker
Take a look at the Productivity Growth Rate over the past twenty years and over last five years, and describe the macro economic implications such as Potential GDP, GDP growth
In order to control crowds, the park's management uses peak-load pricing. This scheme controls crowds and makes sure the park is self-supporting. Calculate the appropriate p
For each of the following utility functions, find the marginal rate of substitution function, MRS, and plot the indifference curve for which the consumer reaches a utility l
1. Respond to the following question in at least three well composed paragraphs: In your own words, and using research sources other than the textbook, distinguish between e
For this assignment, you will download a data set from the University of Michigan Panel Survey Of Income Dynamics. Note that during this process you will need to create an a