The supply of used high-quality motorcycles is Q_H = 0.2P_H - 1,000, and the supply of used low-quality motorcycles is Q_L = 0.5P_L - 1,000. In the used-motorcycle market, potential buyers cannot tell them apart. Consumers value high-quality motorcycles at $10,000 and low-quality motorcycles at $6,000. If consumers believe there is a 50% probability that a used motorcycle is high quality, consumers are willing to pay ____ for any used motorcycle.

Question

Quizplus · Accepted Answer

Given that consumers value high-quality motorcycles at $10,000 and low-quality motorcycles at $6,000, and they believe there's a 50% chance of getting either, the expected value they are willing to pay is the average of these two values: (10,000 + 6,000) / 2 = $8,000.

The Supply of Used High-Quality Motorcycles Is QH = 0

The Supply of Used High-Quality Motorcycles Is Q_H = 0