Suppose there are only two types of cars in the used car market q=0 and q=1....

Suppose there are only two types of cars in the used car market q=0 and q=1. Half the cars are q=0 and the other half are q=1. Buyers still cannot tell the quality but they are aware of the quality distribution. Sellers are willing to accept any price p >0, but prefer to receive a higher price. If buyers do not know q, then they are willing to pay p=10000*Q+500 where Q is the average quality of the cars in the market. Suppose that sellers can get their car certified by having it tested by a third party. Denote y as the number of certifications. Let the cost of each certification be $750 for cars of quality q=1 and $ 4180 for cars of quality q=0. If buyers believe that the certification signals the quality, then they are willing to pay p=10, 500 for signal of high quality and p=500 for the signal of low quality. Find the range for the number of certifications (y) such that there isa separating equilibrium. In addition, what will be the pricein the pooling equilibrium?

Expert Solution

Rahul Sunny answered 2 years ago

Suppose there are only two types of cars in the used car market q=0 and q=1....

Suppose there are only two types of cars in the used car market q=0 and q=1. Half the cars are q=0 and the other half are q=1. Buyers still cannot tell the quality but they are aware of the quality distribution. Sellers are willing to accept any price p≥0, but prefer to receive a higher price. If buyers do not know q, then they are willing to pay p=10000*Q+500 where Q is the average quality of the cars in the...

Consider a market for used cars. Suppose that each car on the market is 1 of...

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Suppose, for simplicity, that there are two kinds of used cars in the market. Exactly 50%...

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Consider the used car Lemons game played in class. Suppose there are two kinds of used cars, good and bad.

Consider the used car Lemons game played in class. Suppose there are two kinds of used cars, good and bad. The current owner (seller) values good cars at S10,000 and bad cars at S6,000. She knows if the car is good or bad. The dealer (buyer) values good cars at $12,000 and bad cars at $7,000. The buyer's payoff is his value of the car minus the price paid. The seller's payoff is the price she receives minus her value...

Used car market, we have sellers who only sell good cars and sellers who sell lemons....

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Consider a simplified market for the used 2015 Nissan Sentra. There are only two types of cars: great condition and poor condition. Suppose the less-informed buyers have no way of observing pertinent information at all about the quality of a car. Suppose each owner of a ‘great condition’ car values the car at $10,000 and each owner of a ‘poor condition’ car values the car at $5,000. Suppose buyers are willing to pay $12,000 for a ‘great condition’ Sentra and...

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Suppose there are only two types of cars in the used car market q=0 and q=1....

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