Question

33. Bruce decides to go to the weekend markets to look for some plants for his garden. There is an 80 percent chance he will find the plants he is looking for and they will be $100 cheaper than his local plant shop, and a 20 percent chance they will be $50 cheaper. The expected value for the plants will be:

1. (a) impossible to calculate from the information given.

2. (b) $100 cheaper than the local plant shop.

3. (c) $90 more expensive than the local plant shop.

4. (d) $90 cheaper than the local plant shop.

5. (e) $50 more expensive than the local plant shop.

34. Under the assumptions of perfect competition, the cost of searching for more information about prices and the quality of goods on sale _________

1. (a) is zero because everybody already knows the market price of the standardised product.

2. (b) is infinite because there is such a large number of buyers and sellers.

3. (c) falls as more information is obtained.

4. (d) rises as more information is obtained.

5. (e) is positive and constant as more information is obtained.

35. Perfect price discrimination results in producer surplus being __________ when __________ individual buyer pays their reservation price.

1. (a) minimized: some

2. (b) zero: some

3. (c) zero: no

4. (d) maximised: each

5. (e) optimised: few

Answer 1

33)

The correct answer is (d) $90 cheaper than the local plant shop.

Formula

EV = P₁W₁ + P₂W₂

where EV = expected Value

P₁ and P₂ are probability that It will be W₁ and W₂ cheaper respectively

=> P₁ = 80% = 0.8 , P₂ = 20% = 0.2 , W₁ = 100 and W₂ = 50

=> EV = P₁W₁ + P₂W₂

= 0.8*100 + 0.2*50

= $90

So, The expected value for the plants will be $90 cheaper than the local plant shop.

Hence, the correct answer is (d) $90 cheaper than the local plant shop.

34)

The correct answer is (a) is zero because everybody already knows the market price of the standardized product.

Under the assumption all buyers have all the information regarding price of product that each firs are selling and hence there is no searching cost in the perfect competitive Industry and also in a perfect competitive Industry firms sells Homogeneous products and thus each product have same quality.

Hence, the correct answer is (a) is zero because everybody already knows the market price of the standardized product.

35)

The correct answer is (d) maximised: each

In a perfect price discrimination a firm has all the information regarding the price each consumer is willing to pay thus charges maximum price that consumer consumer is willing to pay i.e. reservation price. Thus In a perfect price discrimination each consumer pays its reservation wage. Hence, it extracts all the consumer consumer and thus, the producer surplus is maximum under perfect price discrimination .

Hence the correct answer is (d) maximised: each