Chrissie owns a vintage guitar that she values at $0.Mark would like to buy the guitar and values it at $1000.The negotiations are as follows.Chrissie suggests a price to Mark.If Mark agrees trade takes place at the agreed price.If Mark rejects the offer, negotiations end and each party receives a payoff of $0.What is the outcome of the negotiations?
A)Trade takes place at a price of $0.
B)Trade takes place at a price of $500.
C)Chrissie offers a price close to $1000 and Mark rejects the offer.
D)Trade takes place at a price of $1000.
E)Mark rejects any offer Chrissie makes.

Question

Quizplus · Accepted Answer

Since Chrissie values the guitar at $0 and Mark values it at $1000, Chrissie will be incentivized to sell it for any price above $0. Knowing Mark values it at $1000, she can offer it at that price, maximizing her profit, and Mark will accept since it matches his valuation.

Chrissie Owns a Vintage Guitar That She Values at $0