EBK MICROECONOMICS
EBK MICROECONOMICS
12th Edition
ISBN: 8220100659454
Author: PARKIN
Publisher: PEARSON
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Chapter 20.3, Problem 2RQ
To determine

Identify the use of warranties in the market for used car in terms of private information.

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Sam's profit is maximized when he produces   shirts. When he does this, the marginal cost of the last shirt he produces is   , which is    than the price Sam receives for each shirt he sells. The marginal cost of producing an additional shirt (that is, one more shirt than would maximize his profit) is   , which is    than the price Sam receives for each shirt he sells. Therefore, Sam's profit-maximizing quantity corresponds to the intersection of the    curves. Because Sam is a price taker, this last condition can also be written as    .
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