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2. Hot chocolate is a hot commodity at Michigan football games, especially when it is cold out. Football fans face limited options once inside the
2. Hot chocolate is a hot commodity at Michigan football games, especially when it is cold out. Football fans face limited options once inside the stadium, but they know that there are high- and low-quality hot chocolate kiosks. If fans were fully informed, they would be willing to pay $6 for a high-quality hot chocolate and $3 for a low-quality hot chocolate. a. Suppose fans know there are equal numbers of low- and high-quality hot chocolate kiosks. Low-quality kiosks are willing to sell hot chocolate at prices above $3. High- quality kiosks are willing to sell hot chocolate at prices above $6. What would a fan be willing to pay for a cup of hot chocolate? Which kiosks choose to sell hot chocolate at this price? Answer: A fan would be willing to pay $6 for high quality hot chocolate and $3 for low quality hot chocolate. b. Suppose now that there are unequal numbers of low- and high-quality hot chocolate kiosks and fans are still willing to pay $6 for a high-quality hot chocolate and $3 for a low-quality hot chocolate. At these two demand levels, 50 high-quality hot chocolates and 100 low-quality hot chocolates would be sold to fully-informed consumers. High Quality gHrtlH Low Quality DHlLul'i l'rirv l'l'ir'v D DU I\" I . n . I . I . I , 25 Fill 2'5 mo 125 151] 25 an 7: It'll] 125 150 Quantity Quantity
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