Suppose that buyers in the used refrigerator market are willing to pay $500 for a high-quality refrigerators and $200 for a low-quality refrigerators.If buyers believe that 50% of all used refrigerators are low-quality,what is the maximum price they would be willing to pay for a used refrigerator?
A) $200
B) $340
C) $350
D) $500

Question

Quizplus · Accepted Answer

Buyers will calculate the expected value of a used refrigerator based on the probability of getting a high-quality or low-quality one. The expected value is 0.5 * $500 + 0.5 * $200 = $350.

Suppose That Buyers in the Used Refrigerator Market Are Willing