Question
Suppose you know nothing about widgets. You are going to approach a widget merchant to borrow one in order to short-sell it. (That is, you
Suppose you know nothing about widgets. You are going to approach a widget merchant to borrow one in order to short-sell it. (That is, you will take physical possession of the widget, sell it, and return a widget at time T .) Before you ring the doorbell, you want to make a judgment about what you think is a reasonable lease rate for the widget. Suppose that widgets do not deteriorate over time, are costless to store, and are always produced, although production quantity can be varied. Demand is constant over time. Knowing nothing else, what lease rate might you face?
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