Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I need help with f, g, and h only please. Thanks! Abigail is holding a yard sale before she moves out of Nashville. Among other

I need help with f, g, and h only please. Thanks!

Abigail is holding a yard sale before she moves out of Nashville. Among other items, she is selling some used video games. Bing Yang attends the yard sale and is considering buying a video game, although he has no way to tell the quality of the game before purchasing.

Suppose the following: let quality of video games, q, be distributed q U [0, 2], UA = 3q, and UB = 4q.

(a) If Abigail sets a price of p, what is Bing Yang's updated belief on the expected quality of the video game?

(b) What is Bing Yang's willingness to pay?

(c) Will trade take place in equilibrium? If so, what quality of video games will be sold?

Now, suppose that Bing Yang leaves and Catherine, who has utility function UC = 8q, visits the yard sale and is considering buying the used video games.

(d) What is Catherine's willingness to pay? (e) Will trade take place in equilibrium? If so, what quality of video games will be sold?

Next, suppose that Demetrius is holding a separate yard sale and selling used video games with quality, q, distributed q U[1,3]. Suppose that UD = 3q. Begin by assuming Bing Yang visits Demetrius's yard sale.

(f) If Demetrius sets a price of p, what is Bing Yang's updated belief on the expected quality of the video game?

(g) What is Bing Yang's willingness to pay?

(h) Will trade take place in equilibrium? If so, what quality of video games will be sold?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Economics

Authors: Luke M. Froeb, Brian T. McCann, Michael R. Ward

5th Edition

1337106666, 978-1337106665

More Books

Students also viewed these Economics questions

Question

Relax your shoulders

Answered: 1 week ago

Question

Keep your head straight on your shoulders

Answered: 1 week ago