You see an advertisement for a used car. The owner has not set a price but asks for people to make him an offer. You inspect the car and believe that the true value is equally likely to be anywhere in the range of $1,000 to $9,000 (so your calculation of the average of this value is $5,000). The current owner knows the exact true value, and he will for sure accept your offer if it is higher than the true value (but not if it is lower than that value). If your offer is accepted and you get the car, then you will find out the true value. But you know in advance that your amazing car repair skills can increase the value of the car by 25% of whatever its true value is. What is your expected profit if you offer $5,000? Round your answer to the nearest dollar (e.g. 500). If you expect to make a loss, add a minus sign (e.g. -500, please do not include space between minus sign and the number if the answer is negative).
You see an advertisement for a used car. The owner has not set a price but asks for people to make him an offer. You inspect the car and believe that the true value is equally likely to be anywhere in the range of $1,000 to $9,000 (so your calculation of the average of this value is $5,000). The current owner knows the exact true value, and he will for sure accept your offer if it is higher than the true value (but not if it is lower than that value). If your offer is accepted and you get the car, then you will find out the true value. But you know in advance that your amazing car repair skills can increase the value of the car by 25% of whatever its true value is.
What is your expected profit if you offer $5,000? Round your answer to the nearest dollar (e.g. 500). If you expect to make a loss, add a minus sign (e.g. -500, please do not include space between minus sign and the number if the answer is negative).
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