Two parties, Juan and Ben, have been negotiating the purchase by Ben of Juan's car. Juan receives a new and higher bid for his car from Adriana. How might Adriana's bid change Juan and Ben's threat values? The threat values are unchanged. Juan now values the car at the price of Adriana's bid, her bid is his opportunity cost of selling the car to Ben, and that opportunity cost is Juan's new threat value. Juan's new threat value is the product of the difference between Ben and Adriana's offers and the probability the car will be sold to Adriana. Juan's threat value is unchanged, but Ben has to consider his new opportunity cost

A key idea in economics and decision-making is opportunity cost. It speaks of the worth of the…

Answered: wo parties, Juan and Ben, have been…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Two parties, Juan and Ben, have been negotiating the purchase by Ben of Juan's car. Juan receives a new and higher bid for his car from Adriana. How might Adriana's bid change Juan and Ben's threat values?

		The threat values are unchanged.
		Juan now values the car at the price of Adriana's bid, her bid is his opportunity cost of selling the car to Ben, and that opportunity cost is Juan's new threat value.
		Juan's new threat value is the product of the difference between Ben and Adriana's offers and the probability the car will be sold to Adriana.
		Juan's threat value is unchanged, but Ben has to consider his new opportunity cost

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