Let K = search costs, P₂ = the second possible price for an iPhone, and E(P) = the average iPhone price in the market. If K P₂ E(P), then the decision maker's opportunity cost of time is
A) low
B) high
C) normal

Question

Let K = search costs, P₂ = the second possible price for an iPhone, and E(P) = the average iPhone price in the market. If K > P₂ > E(P), then the decision maker's opportunity cost of time is
A) low
B) high
C) normal

Quizplus · Accepted Answer

If K (search costs) is greater than P₂ (the second possible price for an iPhone), which in turn is greater than E(P) (the average iPhone price in the market), it implies that the decision maker is willing to incur a high cost (K) to find a price (P₂) that is still above the average market price (E(P)). This suggests that the decision maker values their time significantly, as they are willing to spend more on search costs than the savings they might achieve from finding a price below the average. Therefore, their opportunity cost of time is high.

Let K = Search Costs, P₂ = the Second Possible