Some recent Super Bowl advertisements have spent very little time mentioning any

Question

Some recent Super Bowl advertisements have spent very little time mentioning anything about their product--or even the name of the company. In particular, the two-minute long Ram Trucks "Farmer" commercial (http://www.youtube.com/watch?v=AMpZ0TGjbWE) had only a few brief and almost unidentifiable views of their product until the last ten seconds of the commercial. Further, the name of the company was only mentioned in the last five seconds of that commercial. Explain why this commercial demonstrated the concept of signaling described in the textbook. In other words, why should consumers be convinced that a Ram truck is of high quality because of the airing of that commercial?

Scenario 4

Suppose there are two types of people who need health insurance; high-risk and low-risk consumers. High-risk consumers have a relatively high probability of needing expensive medical care and on average incur $2,000 of medical expenses per year. The high-risk consumers would be willing to pay up to $2,500 for insurance that covers all their medical bills. Low-risk consumers would be willing to pay up to $1,500 for full-coverage insurance and on average would incur on average $1,200 in medical bills. Assume 1/3 of all consumers are high-risk and the remaining 2/3 of consumers are low-risk. Consumers know whether they are high-risk or low-risk. The insurance company knows 2/3 of all consumers are low-risk but cannot identify which consumers are low-risk.

Explanation / Answer

1. 2/3*1200 +1/3*2000 = 1466.67

2High- risk will surely buy insurance

3 Yes

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.