Figure 9.4
-Figure 9.4 represents the market for used 12 megapixel digital cameras. Suppose buyers are willing to pay $400 for a plum (high-quality) used digital camera and $200 for a lemon (low-quality) used digital camera. If buyers believe that 50% of used digital cameras in the market are lemons (low quality), what is consumers' willingness to pay ($W)?

Question

Quizplus · Accepted Answer

Consumers' willingness to pay ($W) is the average price they are willing to pay for a used 12 megapixel digital camera, considering the quality of the camera. This means that we need to calculate the expected value of $W given that 50% of the cameras are lemons (low quality) and the rest are plums (high quality).

Expected $W = (0.5 x $200) + (0.5 x $400) = $300

Therefore, the consumers' willingness to pay is $300, which is option C.

Figure 9.4 -Figure 9.4 Represents the Market for Used 12 Megapixel Digital