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.

Ask Question & Get Answers from Experts
Browse some more (Macroeconomics) Materials
Assume that t rises to 0.25. What's the new equilibrium income and the new multiplier? d) Calculate the variation of the budget surplus, would the variation of the surplus be
One reason for government intervention in the economy is to discourage the consuption of goods which have negative externalities. Carefully explain why and the extent to which
How large is the current U.S. budget deficit and how has it changed over the last few years and What is the total amount of U.S. debt and how has this changed in the last few
What is the net present value of this proposed project? If efficiency was the only objective for making the decision and we have fully accounted for all costs and benefits wou
Suppose your local Congress representative suggests that the federal government intervenes in the gasoline market to stop runaway price increases. Would you say that this view
Describe at least three benefits of international portfolio diversification. Discuss and explain how three different global funds have used the concept of international portfo
Suppose that two power plants, company 1 and 2 release sulfur dioxide (SO2) in a small urban community that exceeds the emissions standard.
Suppose there are two firms in a market who each simultaneously choose a quantity. Firm 1's quantity is q1, and firm 2's quantity is q2. Therefore the market quantity is Q