Question 4 Question foura) Alex sells high quality toasters that cost him 2000 while Allan sells low quality toasters that cost him 500.Customers are willing to pay 3500 for high quality toasters and 2000 for low quality toasters. Supposenow there is information asymmetry and customers assume only 50% of toasters in the market are goodquality.ii)How much will each seller make in the presence of information asymmetry with no selleroffering a warrantyiii)Suppose a warranty costs Alex 200t while it costs Allan 600t, what t should Alex set to preventAllan from matching his warranty offer?Page 3 of 5iv)Suppose now a quarter of toasters offered for sale are good quality and three quarters are badquality. How much will the potential buyers be willing to pay in the presence of informationsymmetry

Alex sells high quality toasters that cost him 2000 while Allan sells low quality toasters that cost him 500. Customers are willing to pay 3500 for high quality toasters and 2000 for low quality toasters. Suppose now there is information asymmetry and customers assume only 50% of toasters in the market are good quality.

Alex sells high quality toasters that cost him 2000 while Allan sells low quality toasters that cost him 500. Customers are willing to pay 3500 for high quality toasters and 2000 for low quality toasters. Suppose now there is information asymmetry and customers assume only 50% of toasters in the market are good quality.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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