Problem 6 (25 Points): Now consider a potential source of imperfect information in the Ben Traders decision discussed in Problem 4. We continue with the discussion between John Analyst and George Ben. Analyst: Is there any way of obtaining additional information about the chances of obtaining a license other than waiting and seeing what happens? Perhaps there is something that doesn't take as long as waiting for the import approval. Ben: Well, there is always Sam S. Lofon. He is a Washington-based business consultant with good connections in the import licensing bureaucracy. For a fee, he will consult his contacts and see if they think the license will be granted. Of course, his assessment that the license will come through is no guarantee. If somebody in Congress starts complaining, they might shut down imports from Zeldavia. They are really upset about this in the Industrial Belt, and Congress is starting to take some heat. On the other hand, even if Lofon thinks the license won't come through, he might be wrong. He has a pretty good record on calling these things, but not perfect. And he charges a lot for making a few telephone calls Analyst: How good has he been? Ben: He is done some assessments for me, as well as other people I know. I'd say in cases where the import license was ultimately granted, he called it right 80% of the time. However, he hasn't been so good on the license requests that were turned down. In those cases, he only called it right 65% of the time Analyst: You commented earlier that he was expensive. How much would he charge? Ben: This is a pretty standard job for him. His fee for this type of service is $10,000. Should Ben hire Loon, and if so, what is the maximum amount that he should pay Lofon for his services? Problem 6 (25 Points): Now consider a potential source of imperfect information in the Ben Traders decision discussed in Problem 4. We continue with the discussion between John Analyst and George Ben. Analyst: Is there any way of obtaining additional information about the chances of obtaining a license other than waiting and seeing what happens? Perhaps there is something that doesn't take as long as waiting for the import approval. Ben: Well, there is always Sam S. Lofon. He is a Washington-based business consultant with good connections in the import licensing bureaucracy. For a fee, he will consult his contacts and see if they think the license will be granted. Of course, his assessment that the license will come through is no guarantee. If somebody in Congress starts complaining, they might shut down imports from Zeldavia. They are really upset about this in the Industrial Belt, and Congress is starting to take some heat. On the other hand, even if Lofon thinks the license won't come through, he might be wrong. He has a pretty good record on calling these things, but not perfect. And he charges a lot for making a few telephone calls Analyst: How good has he been? Ben: He is done some assessments for me, as well as other people I know. I'd say in cases where the import license was ultimately granted, he called it right 80% of the time. However, he hasn't been so good on the license requests that were turned down. In those cases, he only called it right 65% of the time Analyst: You commented earlier that he was expensive. How much would he charge? Ben: This is a pretty standard job for him. His fee for this type of service is $10,000. Should Ben hire Loon, and if so, what is the maximum amount that he should pay Lofon for his services
