# Question: A new motorcycle sells for 9000 while a used motorcycle

A new motorcycle sells for $9000, while a used motorcycle sells for $1000. If there is no depreciation and risk- neutral consumers know that 20 percent of all new motorcycles are defective, how much do consumers value a non-defective motorcycle?

**View Solution:**## Answer to relevant Questions

What grounds are there for assuming that a randomly chosen social worker is less likely to cheat you in cards than a randomly chosen person?Smith has an investment opportunity that pays 33 with probability 1/2 and loses 30 with probability 1/2. a. If his current wealth is M = 111, and his utility function is U = √M, will he make this investment? b. Will he ...A fair coin is flipped twice and the following payoffs are assigned to each of the four possible outcomes: H - H: win 20; H - T: win 9; T - H: lose 7; T - T: lose 16. What is the expected value of this gamble?A class of 100 students is participating in an auction to see who gets a large jar of quarters. Each student has an unbiased estimate of the total value of the coins. If these estimates are drawn from the interval (0, C), ...Dalgliesh the detective fancies himself a shrewd judge of human nature. In careful tests it has been discovered that he is right 80 percent of the time when he says that a randomly chosen suspect is lying. Dalgliesh says ...Post your question