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
Over the years, Janjigian Company stockholders have provided $15,250 of capital, part when they bought new issues of stock and part when they allowed management to retain some
River Beverages is a food and soft-drink company with worldwide operations. The firm is organized into 5-regional divisions with every vice president reporting directly to the
What is the core issue in this interest group politics Which groups are pro limits Which groups would you imagine are lobbying against Are these peak associations or publ
1.)What major business cycle facts does the RBC theory explain successfully? Does it explain any business cycle facts less well? 2.)How would governmental expansionary policy
The manager of a corporate division faces possibility of an audit each year. She prefers to spend time preparing if she will be audited;
Sometimes market activities (production, buying, and selling) have unintended positive or negative effects outside the market's scope. These are called externalities. As a p
Describe what effect an expansionary fiscal policy would've on the price level and real GDP starting from full employment equilibrium.
As the spokesperson for the Environmental Protection Agency, how would you explain the economic reasons for these actions to angry customers of this company who were forced