Scenario: Tom wants to buy a used iPhone from an online exchange Web site. He expects 50 percent of the used phones to have some defect. He is willing to pay up to $80 for a phone without any defect and $0 for a defective phone. An owner of a good-quality iPhone is likely to sell his phone if he gets a price of $70.
-Refer to the scenario above.In this case,how much should Tom pay for a used iPhone?
A) $80
B) $40
C) $60
D) $0

Question

Quizplus · Accepted Answer

Given Tom's expectation that 50% of the used phones have some defect and he values a non-defective phone at $80 and a defective one at $0, the average value he should be willing to pay is the midpoint between these two values, which is $40. This accounts for the risk of purchasing a defective phone.

Scenario: Tom Wants to Buy a Used IPhone from an Online