The market for used sea kayaks has both a high-quality and low-quality variety. High-quality kayaks are valued at $3,000 and low-quality ones at $800. Supply of used high-quality kayaks is Q_H = 0.5P_H - 1,000, and the supply of used low-quality kayaks is Q_L = P_L - 500. Potential buyers cannot distinguish between a high-quality and a low-quality used kayak. Buyers believe that only 3 of every 10 used kayaks are of high quality. In this market, ____ low-quality used kayaks will be sold. A) 2,000 B) 960 C) 270 D) 0

Question

Quizplus · Accepted Answer

Given the buyers' belief that only 3 out of 10 kayaks are high-quality, they will value an average kayak at 0.3 * $3,000 + 0.7 * $800 = $1,460. Setting this equal to the price for low-quality kayaks, P_L = $1,460, and solving the supply equation Q_L = P_L - 500 gives Q_L = 960.

The Market for Used Sea Kayaks Has Both a High-Quality