Consider a market for product X where 75 percent of the stores charge $500 and 25 percent charge $450.Compute the expected benefit from an additional search when the first search results in a price of $500.

Question

Quizplus · Accepted Answer

Since 75% of stores charge $500 and 25% charge $450, the probability of finding a store that charges $450 on the second search is 0.25. 
Therefore, the expected benefit from an additional search is: 
(0.25 x $450) - (0.75 x 0) = $112.50 - $0 = $112.50 
However, since we have already found a store that charges $500, the benefit from an additional search is only the difference between $500 and $450, which is $50. 
Therefore, the answer is C, $12.50, which is 25% of $50.

Consider a Market for Product X Where 75 Percent of the Stores