Question: Curtis manages an electronics store in Wichita Kansas He considers
Curtis manages an electronics store in Wichita, Kansas. He considers carrying either cameras from Nikon Americas that come with a U.S. warranty or gray market Nikon cameras from a European supplier, which are the same cameras but their warranties are only good in Europe. The gray market cameras have a lower wholesale price. Curtis earns 10% of the store’s profit (and no wage). If the store loses money, he leaves with nothing. He believes that if he sells the Nikon Americas cameras, the store’s profit will be $ 400,000. The profit on the gray market cameras is more uncertain—will locals be willing to buy a less expensive camera without a warranty? If he goes with the gray market camera, he believes that there’s a 50% chance that the store’s profit will be $ 1,000,000 and a 50% probability that the store will lose $ 300,000. Curtis and the store’s owner are both risk neutral. Which camera does Curtis choose to sell? What choice would the owner prefer (if she were fully informed)? Construct an alternative compensation plan involving a salary such that Curtis will earn as much from selling Nikon Americas cameras and that will dissuade him from selling black market cameras if doing so lowers the owner’s expected earnings.
Answer to relevant QuestionsIf a policy change causes a Pareto improvement, is the outcome necessarily Pareto efficient? If a situation is Pareto efficient, are Pareto improvements possible? If a change occurs that causes a Pareto efficient outcome, is ...A monopoly drug company produces a lifesaving medicine at a constant cost of $ 10 per dose. The demand for this medicine is perfectly inelastic at prices less than or equal to the $ 100 ( per day) income of the 100 patients ...When Star Wars Episode III: Revenge of the Sith opened at 12:01 A.M. Thursday, May 19, 2005, the most fanatical Star Wars fans paid $ 50 million for tickets to stay up until 3:00 to 4:00 A.M. Businesses around the country, ...To prevent overfishing, could regulators set a tax on fish or on boats? Explain and illustrate with a graph.Woz Enterprises specializes in electrical components. The market for one particular component is perfectly competitive and in long-run equilibrium. Marginal cost is constant at 30. Woz can develop a much cheaper process for ...
Post your question