Explain the chance of getting a cherry change.

Question

Want to see the full answer?

Answer 1

Question

Chapter 8, Problem 13QE

To determine

Explain the chance of getting a cherry change.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Suppose there are only two kind of cars in the market for used cars: lemons and good cars. A lemon is worth $1,000 both to its current owner and to anyone who buys it. A good car is worth $8,000 to its current and potential owners. Buyers can't tell whether a car is a lemon until after they have bought the car, and there is no warranty. What is the prevailing price of a used car? $8,000 $4,500 $1,000 The prevailing price depends on how many lemons and how many good cars are traded.

Consider a market in which there are many potential buyers and sellers of used cars. Each potential seller has one car, which is either of high quality (a plum) or low quality (a lemon). A seller with a low-quality car is willing to sell it for $4,500, whereas a seller with a high-quality car is willing to SAL sell it for $8,500. A buyer is willing to pay $5,500 for a low- quality car and $10,500 for a high-quality car. Of course, only the seller knows whether a car is of high or low quality, as illustrated in the accompanying image: Suppose that 85% of sellers have low-quality cars. Assume buyers know that 85% of sellers have low-quality cars but are unable to determine the quality of individual cars. If all sellers offer their cars for sale and buyers have no way of determining whether a car is a high-quality plum or a low-quality lemon, the expected value of a car to a buyer is $ (Hint: The expected value of a car is the sum of the probability of getting a low-quality car multiplied…

Bill is a professional photographer. His camera is broken, and he needs a new one within the next hour, orhe will miss an important deadline. Lisa is a highschool student who doesn’t have a camera but wantsto get one to take pictures at her prom next month.Who do you think would have a higher willingnessto pay for a particular camera today? Why?