After graduating, you start work as a management consultant. You are paid $210 per hour. One morning before work, you decide to buy a new car. You know the exact model you want, and you know that in your area the price ranges from $39,000 to $41,000, with the average price you can expect to pay being $40,000. You can choose among hundreds of dealers, but you don't know which dealer will give you the best price. Time is literally money, since every hour you spend searching is an hour you don't get paid. Each visit to a dealer takes an hour. Your expected marginal benefit of another search is the difference between the current dealer's offer and the average price. The first dealer you go to asks $40,500 for the car. Should you accept the price or keep searching? (Keep in mind that each visit to a dealer takes an hour.) Keep searching. Accept the price. Suppose you kept searching, and the next dealer you go to asks $40,150. Do you think you should accept this price or keep searching? O Keep searching. Accept the price. Suppose you kept searching, and the next dealer you go to asks $40,200. You could return to the last dealer (who offered you a price of $40,150) but that would take another hour. What should you do? Return to the last dealer and pay $40,150. O Get a new price from yet another dealer. O Accept the price of $40,200. Suppose you only earned $100 per hour. Would you accept the price at any of those dealers, or would you keep searching? (Recall that the first dealer asked for $40,500, the second asked for $40,150, and the third asked for $40,200.) Stop searching after the third dealer, and pay the price of $40,200. O Stop searching after the first dealer, and pay the price of $40,500. O After getting a price of $40,200 from the third dealer, return to the second dealer and pay $40,150. After getting a price of $40,200 from the third dealer, search for a fourth dealer.
After graduating, you start work as a management consultant. You are paid $210 per hour. One morning before work, you decide to buy a new car. You know the exact model you want, and you know that in your area the price ranges from $39,000 to $41,000, with the average price you can expect to pay being $40,000. You can choose among hundreds of dealers, but you don't know which dealer will give you the best price. Time is literally money, since every hour you spend searching is an hour you don't get paid. Each visit to a dealer takes an hour. Your expected marginal benefit of another search is the difference between the current dealer's offer and the average price. The first dealer you go to asks $40,500 for the car. Should you accept the price or keep searching? (Keep in mind that each visit to a dealer takes an hour.) Keep searching. Accept the price. Suppose you kept searching, and the next dealer you go to asks $40,150. Do you think you should accept this price or keep searching? O Keep searching. Accept the price. Suppose you kept searching, and the next dealer you go to asks $40,200. You could return to the last dealer (who offered you a price of $40,150) but that would take another hour. What should you do? Return to the last dealer and pay $40,150. O Get a new price from yet another dealer. O Accept the price of $40,200. Suppose you only earned $100 per hour. Would you accept the price at any of those dealers, or would you keep searching? (Recall that the first dealer asked for $40,500, the second asked for $40,150, and the third asked for $40,200.) Stop searching after the third dealer, and pay the price of $40,200. O Stop searching after the first dealer, and pay the price of $40,500. O After getting a price of $40,200 from the third dealer, return to the second dealer and pay $40,150. After getting a price of $40,200 from the third dealer, search for a fourth dealer.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:After graduating, you start work as a management consultant. You are paid $210 per hour. One morning before work, you decide to buy a new car.
You know the exact model you want, and you know that in your area the price ranges from $39,000 to $41,000, with the average price you can expect
to pay being $40,000. You can choose among hundreds of dealers, but you don't know which dealer will give you the best price.
Time is literally money, since every hour you spend searching is an hour you don't get paid. Each visit to a dealer takes an hour. Your expected
marginal benefit of another search is the difference between the current dealer's offer and the average price.
The first dealer you go to asks $40,500 for the car. Should you accept the price or keep searching? (Keep in mind that each visit to a dealer takes an
hour.)
Keep searching.
Accept the price.
Suppose you kept searching, and the next dealer you go to asks $40,150. Do you think you should accept this price or keep searching?
O Keep searching.
Accept the price.
Suppose you kept searching, and the next dealer you go to asks $40,200. You could return to the last dealer (who offered you a price of $40,150) but
that would take another hour. What should you do?
Return to the last dealer and pay $40,150.
O Get a new price from yet another dealer.
O Accept the price of $40,200.
Suppose you only earned $100 per hour. Would you accept the price at any of those dealers, or would you keep searching? (Recall that the first dealer
asked for $40,500, the second asked for $40,150, and the third asked for $40,200.)
Stop searching after the third dealer, and pay the price of $40,200.
O Stop searching after the first dealer, and pay the price of $40,500.
O After getting a price of $40,200 from the third dealer, return to the second dealer and pay $40,150.
After getting a price of $40,200 from the third dealer, search for a fourth dealer.
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