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
If a soybean grower for who price exceeds average total cost for a wide range of output is currently producing where Average Total Cost is at a minimum.
Effects on the exchange rate among the British pound and the Japanese yen.
In a multibank system, an individual bank makes loans only up to the level of its excess reserves, while the whole commercial banking system can lend out money that is a mul
Bavarian Crystal Works designs and produces lead crystal wine decanters for export to international markets-What is the optimal level of production of wine decanters?
important sense the term strategy irrelevance proposition is misleading because if the rational expectations
Before September 1992, the lira or DM exchange rate could fluctuate through up to 2.25% up or down. If central banks ensured that the lira or DM exchange rate band was set in
Is this type of bonus structure in the interest of the company? Use theoretical and graphical insights from chapter five of the textbook to explain your reasoning.
Depends on this information, elucidate the effect on the consumption of cereal.