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.

Answer rating: 100% (QA)

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