Difficulty: Jerry's Auction House in Purloined Hubcap, Oregon, holds sealed-bid used-car auctions every Wednesday. Each car is so highest bidder at the second-highest bidder's bid. On average, 2/3 of the cars that are auctioned are lemons and 1/3 are good used ca good used car is worth $2,700 to any buyer. A lemon is worth $240 to any buyer. Most buyers can do no better than picking at rande among these used cars. The only exception is Al Crankcase. Recall that Al can sometimes detect lemons by tasting the oil on the can dipstick. A good car never fails Al's test, but half of the lemons fail his test. Al attends every auction, licks every dipstick, and bids h expected value of every car given the results of his test. Al will bid Select one: O A. $1,350 for cars that pass his test and $900 for cars that fail his test. Normal bidders will get only lemons. O B. $900 for cars that pass his test and $240 for cars that fail his test. Normal bidders will get good cars only 1/6 of the time. O C. S1,470 for cars that pass his test and $240 for cars that fail his test. Normal bidders will get only lemons. O D. $480 for cars that pass his test and $240 for cars that fail his test. Normal bidders will get good cars only 1/12 of the time. E. $1.060 for cars that pass his test and $340 for cars that fail his test. Normal bidders will get good cars only 1/6 of the time.
Difficulty: Jerry's Auction House in Purloined Hubcap, Oregon, holds sealed-bid used-car auctions every Wednesday. Each car is so highest bidder at the second-highest bidder's bid. On average, 2/3 of the cars that are auctioned are lemons and 1/3 are good used ca good used car is worth $2,700 to any buyer. A lemon is worth $240 to any buyer. Most buyers can do no better than picking at rande among these used cars. The only exception is Al Crankcase. Recall that Al can sometimes detect lemons by tasting the oil on the can dipstick. A good car never fails Al's test, but half of the lemons fail his test. Al attends every auction, licks every dipstick, and bids h expected value of every car given the results of his test. Al will bid Select one: O A. $1,350 for cars that pass his test and $900 for cars that fail his test. Normal bidders will get only lemons. O B. $900 for cars that pass his test and $240 for cars that fail his test. Normal bidders will get good cars only 1/6 of the time. O C. S1,470 for cars that pass his test and $240 for cars that fail his test. Normal bidders will get only lemons. O D. $480 for cars that pass his test and $240 for cars that fail his test. Normal bidders will get good cars only 1/12 of the time. E. $1.060 for cars that pass his test and $340 for cars that fail his test. Normal bidders will get good cars only 1/6 of the time.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Difficulty: Jerry's Auction House in Purloined Hubcap, Oregon, holds sealed-bid used-car auctions every Wednesday. Each car is soldt
highest bidder at the second-highest bidder's bid. On average, 2/3 of the cars that are auctioned are lemons and 1/3 are good used cars.
good used car is worth $2,700 to any buyer. A lemon is worth $240 to any buyer. Most buyers can do no better than picking at random.
among these used cars. The only exception is Al Crankcase. Recall that Al can sometimes detect lemons by tasting the oil on the car's
dipstick. A good car never fails Al's test, but half of the lemons fail his test. Al attends every auction, licks every dipstick, and bids his
expected value of every car given the results of his test. Al will bid
Select one:
O A. $1,350 for cars that pass his test and $900 for cars that fail his test. Normal bidders will get only lemons.
O B. $900 for cars that pass his test and $240 for cars that fail his test. Normal bidders will get good cars only 1/6 of the time.
OC.S1,470 for cars that pass his test and $240 for cars that fail his test. Normal bidders will get only lemons.
O D. $480 for cars that pass his test and $240 for cars that fail his test. Normal bidders will get good cars only 1/12 of the time.
O E. $1.060 for cars that pass his test and $340 for cars that fail his test. Normal bidders will get good cars only 1/6 of the time.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education