### What is the price and quantity of toasters

##### Reference no: EM1380891

There are 100 producers of toasters. Half of the producers are "low quality," i.e. their products will break with probability of 0.8, and their cost of production is \$8 per toaster. The other half of the producers are "high quality," i.e., their products will break with probability of 0.1, and their cost of production is \$40 per toaster. (A producer's type is fixed, so if you are low (high) quality then you only know how to manufacture low (high) quality toasters.)

For simplicity, we assume that each producer only produces 1 toaster if it chooses to produce. For a buyer, a toaster that works has a value of \$50, and a toaster that breaks has a value of 0. There is an infinite number of buyers.

a. If a buyer knows for sure that a toaster is of low quality, what is its expected value to hi m?

b. If a buyer knows for sure that a toaster is of high quality, what is its expected value to him?

c. Suppose buyers cannot tell the difference between high and low quality toasters. Draw the supply and demand curves for toasters in a graph. Label everything clearly.

d. In equilibrium, what is the price and quantity of toasters? What kind(s) of toasters are bought and sold?

This is a follow-up to Problem.

Suppose that all the producers sell toasters through Wal-Mart, and Wal-Mart lets producers choose from 2 options. With Option A, a producer sells a toaster at \$49 but has to offer a free warranty to the consumer. With Option B, a producer sells a toaster at \$10 without any warranty. A free warranty means that if a customer's toaster breaks, then she can return it and the producer must give her a full refund. (The returned good is of no use to anyone and will be dumped.)

a. Which option will a low-quality producer choose, A or B? Justify numerically.

b. Which option will a high-quality producer choose, A or B? Justify numerically.

c. Will offering a free warranty send a useful signal to the consumer in this case? Why?

### Write a Review

#### Explain the unemployment rate in tappania is higher

Explain the unemployment rate in Tappania is higher now than it has been in 50 years. Can both of these statements be true at the same time.

#### What percent of total complaints can be attributed

Depict this data with a Pareto chart. Also depict cumulative complaint line. What percent of total complaints can be attributed to most prevalent complaint.

#### Illustrate what would be natural rate of unemployment

Illustrate what would be natural rate of unemployment if a baby boom led to a year in which teenagers made up 20% of labour force.

#### What do you mean by the pattern of trade

No suppose that the soy industry produces differentiated products and is characterized by EOS and monopolistic competition. Auto industry is still perfectly competitive. what do you mean by the pattern of trade.

#### Calculate velocity of money when price level

calculate velocity of money when price level is 10, national quantity of output is \$200 billion and money supply is \$250 billion Answer must be in detail Explain how Explain how you got answer.

#### Point of tangency that characterizes

Suppose the point of tangency that characterizes long-run equilibrium for a monopolistically competitive firm occurs at Q1 units of output.

#### How might oligopolistic increase

How might oligopolistic increase total revenue without changing prices.

#### A pattern of change in a particular market model

Select also research an industry where there has been a pattern of change in a particular market model

#### Illustrate what is the profit maximising output

Suppose a monopolist's demand is given by the function P=25-3Q. Let the total cost of production be 7Q+28 for positive levels of output, and zero otherwise. Illustrate what is the profit maximising output.

#### Two processes are under consideration for a certain product

Two Processes are under consideration for a certain production. Process A needs acquisition of a new machine which is estimated

#### What is steves expected utility from buying

Steve believes that Monica has a 25% chance of be Illustrate what is Steve's expected utility from buying.

#### Illustrate what are open-market operations

Illustrate what are open-market operations? How are they conducted to fight inflation and recession. Write your answers completely.

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!