Cindy wants to buy a watch for her boyfriend as a gift, and the lowest price...
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Cindy wants to buy a watch for her boyfriend as a gift, and the lowest price she has found so far is $1000. Cindy thinks one-fifth of the stores charge $1230 for a watch, one-fifth charge $1000, one-fifth charge $790, one-fifth charge $680, and one-fifth charge $450. (a) Calculate the expected benefit of an additional search for Cindy. Should Cindy continue to search if her search cost is $250 per search? (b) Briefly explain how the reservation price of Cindy will change, if she gets a higher salary job. Cindy wants to buy a watch for her boyfriend as a gift, and the lowest price she has found so far is $1000. Cindy thinks one-fifth of the stores charge $1230 for a watch, one-fifth charge $1000, one-fifth charge $790, one-fifth charge $680, and one-fifth charge $450. (a) Calculate the expected benefit of an additional search for Cindy. Should Cindy continue to search if her search cost is $250 per search? (b) Briefly explain how the reservation price of Cindy will change, if she gets a higher salary job.
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a To calculate the expected benefit of an additional search for Cindy we can use the concept of expected value The expected benefit is the difference ... View the full answer
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
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