Suppose the costs of producing a low-quality blue-tooth headphone is $12 and $16 to produce a high-quality one. Consumers cannot distinguish high-quality from low- quality prior to buying. Assume that consumers value headphones at their cost of production and are risk-neutral. a) How many of the firms produce will produce high-quality speakers and how many produce low-quality speakers? b) Describe the equilibrium in this market. c) What happens if consumers are willing to pay $36 for high-quality speakers. Describe this new equilibrium. d) Compare parts b) and c). Explain all your results. Please show equations to justify the answer. Thank you!

Suppose the costs of producing a low-quality blue-tooth headphone is $12 and $16 to produce a high-quality one. Consumers cannot distinguish high-quality from low- quality prior to buying. Assume that consumers value headphones at their cost of production and are risk-neutral. a) How many of the firms produce will produce high-quality speakers and how many produce low-quality speakers? b) Describe the equilibrium in this market. c) What happens if consumers are willing to pay $36 for high-quality speakers. Describe this new equilibrium. d) Compare parts b) and c). Explain all your results. Please show equations to justify the answer. Thank you!

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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