Andrew wants to purchase Adam's car. Andrew is prepared to pay a maximum of $2,000. Adam is not willing to accept anything lower than $1,000. Suppose that any failure to reach an agreement reduces Andrew's and Adam's gain from bargaining by 10 percent. If there is no limit to the number of negotiating rounds, how much should Andrew offer for Adam's car?
A) $1,000.
B) An amount that is somewhat greater than $1,500.
C) An amount that is somewhat less than $1,500.
D) $2,000.
E) None of the above since Andrew and Adam will be unable to negotiate a selling price.

Question

Quizplus · Accepted Answer

Since there is no limit to the number of negotiating rounds, and failure to reach an agreement reduces their gain by 10 percent, it is in both parties' interest to reach an agreement quickly. The midpoint between Andrew's maximum ($2,000) and Adam's minimum ($1,000) is $1,500. Offering slightly more than $1,500 would be a strategic move by Andrew to reach an agreement that is favorable to both parties, acknowledging the bargaining range and aiming for a quick resolution to avoid the penalty of prolonged negotiation.

Andrew Wants to Purchase Adam's Car