Describe to your friend how you would approach the decision

Assignment Help Microeconomics
Reference no: EM131524644

Question: Continuing Problem 16.13, the computers are described as follows:

A. Price: $998.95 Expected number of days in the shop per year: 4

B. Price: $1,300.00 Expected number of days in the shop per year: 2

C. Price: $1,350.00 Expected number of days in the shop per year: 2.5

D. Price: $1,750.00 Expected number of days in the shop per year: 0.5

The computer will be an important part of your friend's livelihood for the next 2 years. (After 2 years, the computer will have a negligible salvage value.) In fact, your friend can foresee that there will be specific losses if the computer is in the shop for repairs. The magnitude of the losses are uncertain but are estimated to be approximately $180 per day that the computer is down.

a. Can you give your friend any advice without doing any calculations?

b. Use the information given to determine weights and , where R stands for reliability. What assumptions are you making?

c. Calculate overall utilities for the computers. What do you conclude?

d. Sketch three indifference curves that reflect your friend's trade-off rate between reliability and price. e. What considerations other than losses might be important in determining the tradeoff rate between cost and reliability?

Problem: A friend of yours is in the market for a new computer. Four different machines are under consideration. The four computers are essentially the same, but they vary in price and reliability. The least expensive model is also the least reliable, the most expensive is the most reliable, and the other two are in between.

a. Describe to your friend how you would approach the decision.

b. Define reliability in a way that would be appropriate for the decision. Do you need to consider risk?

c. How might your friend go about establishing a marginal rate of substitution between reliability and price?

Reference no: EM131524644

Reviews

Write a Review

 

Microeconomics Questions & Answers

  Why you believe that the fomc has made such a decision

Discuss why you believe that the FOMC has made such a decision, and explain the consequences of such a decision on the economy.

  What is the present worth of the contract

A maker of microelectromechanical systems can reduce product recalls by 10% if it purchases new packaging equipment. If the cost of the new equip- ment is expected to be $40,000 four years from now, how much could the company afford to spend now (..

  National income and product account tables

"National Accounts" and then "National Income and Product Account Tables.

  Compute the cost of a batch of the final product

A firm uses two inputs R and Twhich cost £40 each per tonne. They both contain the chemical compounds G and H in the following quantities.

  What phase of the business cycle was italy going through

What phase of the business cycle was Italy going through in 2012? Refer to the above sources and economic theory in your answer and demonstrate the phase of the business cycle using an aggregate demand and supply model.

  Assume the marginal product of labor is mpl 20 and the

assume the marginal product of labor is mpl 20 and the marginal product of capital is mpk 50. in addition the price

  Does the pricing behavior of these computer industry firms

For the next five years, Hewlett-Packard raised its prices five times, and each time Canon followed suit within 24 hours. Does the pricing behavior of these computer industry firms follow the cartel model or the price leadership model? Why?

  A secondary data research proposal which focuses only on a

a secondary data research proposal which focuses only on a few banks in the uk1200 word count research questioncustomer

  Economists occasionally speak of helicopter money

Economists occasionally speak of “helicopter money” as a short-hand approach to explaining increases in the money supply. Suppose the Governor of the Fed flies over the country in a helicopter dropping 10,000,000 in newly printed $100 bills (a total ..

  How to establish the vicinity of all major college

A group of five students has decided to form a company to publish a guide to eating establishments located in the vicinity of all major college and university campuses in Texas. In planning for an initial publication of 6,000 copies, they estimate..

  Redundant labor and disguised unemployment

The line d-f in graph 1-1 is the demand for labor in the industrial sector of the economy. What causes it to shift out to d'-f'. What is the difference between redundant labor and disguised unemployment

  Define atc curve

Use the accompanying diagram to answer a-c. a. Assuming the monopolist indicated in the diagram produced at all, indicate its profit-maximizing quantity and price.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd