Question

For questions the next few questions, please respond to the following questions with regard to the following scenario.

Becky would like to sell her 2003 Ford Ranger. She advertised the truck at $3,800 in the local newspaper. She hopes to sell it for $3,500. The lowest price she will accept before selling is $3,300. If she doesn’t receive an offer of at least $3,300, she will donate her truck to charity for a tax deduction. Alec would like to buy her truck, and he thinks he can get it from Becky for $2,800. The most Alec would pay is $3,000.

1. $2,800 represents Alec’s .

2. $3,800 represents Becky’s .

3. $3,300 represents Becky’s .

4. Becky’s BATNA is .

Possible answers:

• Asking price
• Reservation
• Target
• donating the car to charity
• $3,300
• $3,800
• $3,000
• None of the above

Answer 1

(1)

Alec wants to buy the truck. He anticipates to get the truck for $2800. However, his maximum willingness to pay is $3000.

Thus,

$2800 represents Alec's Target price.

(2)

Becky has advertised the intention to sell truck for $3800.

The price at which a good is intended to sell is the asking price.

So,

$3800 represents Becky's Asking price.

(3)

The minimum price that Becky can accept for the truck is $3300.

The minimum price acceptable to seller is called reservation price.

So,

$3300 represents Becky's Reservation price.

(4)

BATNA implies the best alternative that a party will choose if the agreement do not materialize.

Becky has intention of donating the truck to charity if she was not able to sell it.

Thus,

Becky's BATNA is donating the car to charity.