Pelican Point Financial Group's clientele consists of two types of investors. The first type of investor makes many transactions in a given year and has a net worth of over $2 million. These investors seek unlimited access to investment consultants and are willing to pay up to $15,000 annually for no-fee-based transactions, or alternatively, $25 per trade. The other type of investor also has a net worth of over $2 million but makes few transactions each year and therefore is willing to pay $95 per trade. As the manager of Pelican Point Financial Group, you are unable to determine whether any given individual is a high- or low-volume transaction investor. To deal with this issue, you design a self-selection mechanism that permits you to identify each type of investor. You offer two types of plans for customers with more than $2 million in assets: one plan has an annual maintenance fee but offers a large number of "free" transactions (call this the "Free Trade" Account); the other plan has no annual maintenance fee but charges for each transaction (call this the "Free Service" Account). Determine the specifics for each plan as listed below: "Free Trade" Account: Annual maintenance fee: $ Number of "free" transactions: Price for each transaction in excess of the number of "free" transactions:$ "Free Service" Account: Price per transaction: $
Pelican Point Financial Group's clientele consists of two types of investors. The first type of investor makes many transactions in a given year and has a net worth of over $2 million. These investors seek unlimited access to investment consultants and are willing to pay up to $15,000 annually for no-fee-based transactions, or alternatively, $25 per trade. The other type of investor also has a net worth of over $2 million but makes few transactions each year and therefore is willing to pay $95 per trade. As the manager of Pelican Point Financial Group, you are unable to determine whether any given individual is a high- or low-volume transaction investor. To deal with this issue, you design a self-selection mechanism that permits you to identify each type of investor. You offer two types of plans for customers with more than $2 million in assets: one plan has an annual maintenance fee but offers a large number of "free" transactions (call this the "Free Trade" Account); the other plan has no annual maintenance fee but charges for each transaction (call this the "Free Service" Account). Determine the specifics for each plan as listed below: "Free Trade" Account: Annual maintenance fee: $ Number of "free" transactions: Price for each transaction in excess of the number of "free" transactions:$ "Free Service" Account: Price per transaction: $
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Pelican Point Financial Group's clientele consists of two types of investors. The first type
of investor makes many transactions in a given year and has a net worth of over $2
million. These investors seek unlimited access to investment consultants and are willing
to pay up to $15,000 annually for no-fee-based transactions, or alternatively, $25 per
trade. The other type of investor also has a net worth of over $2 million but makes few
transactions each year and therefore is willing to pay $95 per trade.
As the manager of Pelican Point Financial Group, you are unable to determine whether
any given individual is a high- or low-volume transaction investor. To deal with this issue,
you design a self-selection mechanism that permits you to identify each type of investor.
You offer two types of plans for customers with more than $2 million in assets: one plan
has an annual maintenance fee but offers a large number of "free" transactions (call this
the "Free Trade" Account); the other plan has no annual maintenance fee but charges for
each transaction (call this the "Free Service" Account).
Determine the specifics for each plan as listed below:
"Free Trade" Account:
Annual maintenance fee: $
Number of "free" transactions:
Price for each transaction in excess of the number of "free" transactions:$
"Free Service" Account:
Price per transaction: $
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