Question

All book buyers have the same preferences, and under current arrangements, those who buy used books at $22 receive the same utility as those who buy new books at $50. The annual interest rate is 10 percent, and there are no transaction costs involved in the buying and selling of used books. Each new textbook costs $ m to produce and lasts for exactly 2 years.
a. What is the most a buyer would pay for the use of a new book for 1 yr?
b. How low would m have to be before a publisher would find it worth-while to print books with disappearing ink— ink that vanishes 1 yr from the point of sale of a new book, thus eliminating the used- book market? (Assume that eliminating the used book market will exactly double the publisher’s sales.)



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  • CreatedDecember 12, 2014
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