If a typical consumer is willing to pay $3,000 for a plum and $1,000 for a lemon, and there is a 50% chance of getting a lemon, the typical consumer is willing to pay $2,000 for a used car.

Question

Quizplus · Accepted Answer

The expected value of the car is calculated by averaging the values of the plum and lemon, weighted by their probabilities: (0.5 * $3,000) + (0.5 * $1,000) = $2,000.

If a Typical Consumer Is Willing to Pay $3,000 for a Plum