ch09_solutions_solved edit

# ch09_solutions_solved edit - Solutions to Chapter 9...

This preview shows pages 1–4. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
S2. (a) To achieve separation, t must be such that: t 2 / 160 > 10 and t 2 / 320 < 10 t 2 > 1,600 and t 2 < 3,200 t > 40 and t < 56.57 The minimum wait time that achives separation is the smallest moment longer than forty minutes. (b) The expected benefit has changed for the college students, so t must now satisfy: t 2 / 160 > 0.5*(10) + 0.5*(–5) = 2.5 and t 2 / 320 < 10 t 2 > 400 and t 2 < 3200 t > 20 and t < 56.57 The minimum wait time that achives separation is now a shade more than twenty minutes. The partial identification of college students reduces the minimum wait time required to achieve separation. When the charity has more information about the patrons—even if only partial information—this allows it to distinguish between the two types by means of a less stringent test. S3. (a) Buyers expect a random Citrus to be an orange with probability f = 0.6 and a lemon with probability 0.4. Risk-neutral buyers are then willing to pay up to: 0.6 * \$18,000 + 0.4 * \$8,000 = \$14,000 (b) The willingness to accept (WTA) of owners of oranges is \$12,500. Since the willingness to pay (WTP) of buyers is \$14,000 for a random Citrus, sellers will be willing to sell and buyers will be willing to buy for any price in the range [\$12,500, \$14,500]. Thus, there will indeed be a market for oranges. (c) If f = 0.2, risk-neutral buyers will be willing to pay up to: Solutions to Chapter 9 Exercises 2 of 18
0.2 * \$18,000 + 0.8 * \$8,000 = \$10,000 (d) There will not be a market for oranges when f = 0.2. The probability of a random Citrus being an orange is so low that a buyer would only be willing to pay up to \$10,000, but owners of oranges require at least \$12,500. No oranges will be sold.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 19

ch09_solutions_solved edit - Solutions to Chapter 9...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online