Homework: Chapter 8 Homework Score: 0 of 1 pt Hw Score: 76.92%, 10 of 13 pts End

Question

Homework: Chapter 8 Homework Score: 0 of 1 pt Hw Score: 76.92%, 10 of 13 pts End-of-Chapter Exercise 23 You are in the market for a ued car a used car lot, you know thai the blue book value for the cars you are looking at is between $15.000 and $20,000 you beleve the dealer knows more about the cars than you, how much are you wiling to pay? Assume that you care only about the expected value of the car you buy and that the car values ane symmetrically dstrbuted You ane wiling to pay $ 18250 Round your response to the neareat whole number

Explanation / Answer

Answer is $15,000.

____

Explanation:

Based on the information provided in the question, you would be willing to pay the average price which is $17,500 [(15,000 + 20,000)/2]. However, the dealer would be aware of this. So, he will show you cars within the price range of $15,000 to $17,500. You would be aware of this fact. So, you would be willing to pay $16,250 [(15,000 + 17,500)/2]. As the dealer would again know this, he would should you cars within the price range of $15,000 to $16,250. This process will end with you paying $15,000 and the maximum worth of the car being $15,000. The dealer won't be able to sell cars worth more than $15,000.

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

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