In: Economics
We know the Average price of the car is $36,000.
Each dealer takes 1 hour that means going to each dealer costs me $150 as opportunity cost. ( Because instead of finding the suitable dealer, I could work and earn $150 per hour)
Case 1:
Dealer asks for $36,300. Price is above the average price and Including my opportunity costs, it will cost me $36,300 + 150 = $36,450
I would like to go to another dealer i.e. KEEP SEARCHING.
Case 2:
Dealer asks for $36,100. Price is above the average price and Including my opportunity costs, it will cost me $36,100 + 150 + 150 = $36,400
It's better than Case 1. It would like to accept it.
Because, even if next dealer asks me the average price that is 36,000, it would cost me ( 36,000 + 150 *3)36,450. So, the better option is to accept it.
Case 3:
Suppose kept searching, next dealer asks for $36,130. I have an option even to get back to the previous seller, so what would I like to do.
I will accept this price.
Because, third dealer's price is costing me $36,130 + 150*3 = $36,580
AND returning to the second seller will cost me another 1 hour, so second dealer's price is costing me now $36,100 + 150*4 = $36,700
And searching for another dealer even if he asks for $36,000 , it will cost me $36,000 + 150 * 4 = $36,600
So, better option among these 3 is to accept the price of the third dealer.
*** it can be profitable for different dealers to offer different prices because different people have different opportunity costs of the time, even high priced dealers can sometimes make sales like in case 3. ***