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
illustrate what do you think will occur to the price of marijuana if its purchase and sale are legalized. Be specific as to changes in the supply and demand curves.
Explain why a short run average cost curve only touches the long run average cost curve at one point on the long run average curve. define clearly the concept of returns to sc
From the scenario, discuss two negative influences that poorly performing students at a local school might have on the copy center' s prospects for securing qualified labor.
Would the following events usually lead to capital deepening? Why or why not? a. A weak economy in which businesses become reluctant to make long-term investments in physical
A new widget, with a service life of four years, would save $50,000. in production costs each year. Using a 12.00% nominal annual interest rate, determine the highest pric
What think is the best way to analyse the situation - including choice of theory and sources of evidence, what type of findings you expect and what potential applications yo
Independent of #1 above, Atomic Rooster sets a unit sales price of $8 and customers purchase 1,000 copies. Then they raise the price to $10 and customers purchase 600 copies
1.  In a recession, tax payments tend to increase and transfer payments tend to decrease.  T/F 2. By engaging in "maturity transformation" commercial banks transfer risk due