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Imagine we are studying a consumer choosing between two water heaters. Water heater A costs $200 a year to run and water heater B costs
Imagine we are studying a consumer choosing between two water heaters. Water heater A costs $200 a year to run and water heater B costs $190 a year to run. The predicted life for both is 10 years. To make the math easy, let's assume all operating costs are paid one time at the very end of the year (so your utility payment will be a year from now and only happen once in a year). Assume the consumer's interest rate was 5%. a. What is the expected lifetime cost of operating water heater A? b. What is the expected lifetime cost of operating water heater B? c. If the consumer was only willing to pay $50 more for water heater B than water heater A. what is amount of energy paradox present in this consumer
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