1. Consider the used car market for Tata Nano. A car designer has refurbished the 2014 model of the Nano into a coupe with two seats and a small boot, increasing the appeal for used Nano cars. There is a surge in demand owing to Coupe-lovers and consumers are willing to pay up to Rs.120,000 for a good-quality Nano and Rs.50,000 for a low-quality Nano. Assume that the owners of the good-quality Nanos value their cars at Rs.90,000.

(a) What will be the price of a 2014 Nano model of unknown quality if 40 per cent of the cars are of dubious quality?

(b) Will good-quality Nanos be offered for sale if 40 per cent of the cars are of dubious quality? Explain.

(c) If the proportion of dubious quality cars rises to 60 per cent, what will be the price that consumers are willing to pay?

(d) Will good-quality Nanos be offered for sale at the price given in (c)?

(e)What is the minimum threshold proportion of good-quality cars that is required for good-quality Nanos to be offered for sale?