ps5_fall'11 - Department of Economics Columbia University...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Department of Economics W3211 Columbia University Fall 2011 Probl e m S e t 5 Int e rm e diat e Mi c ro ec onomi c s Prof . S e yhan E A rkona c 1 . Sinan declares that he is risk neutral andthinking of opening a video game store ” for holidays shopping period. His “store” will either be a small booth in the student union or a table in Washington Square. He is planning to buyused games from friends and resell them. However amount of games his friends have is unknown to Sinan. He will try his group of friends from high school and from college. If his friends kept all the games they ever had, he may be able to gather as high as 400 games, if they already gave away most of the games, the number will go as little as 40 games. Sinan must decide how large his store should be before he can find out how many games he will be able to collect to sell. The booth can handle 400 games at a cost of $2 a game. In addition he has to pay $200 rent. The table in Washington Square can only handle 40 games at a cost of $2 a game. He can rent the table for $20. Finally, assume that the probability that Sinan will be able to gather 40 games is 60% and that he can sell each game for $20. (a) Illustrate Sinan’s decision problem in a decision tree. (b) What size “store” is e x an t optimal? Is it always x po st optimal? If not then under what circumstances is it not optimal? ( c
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/16/2012 for the course ECON W3211 taught by Professor Elmes during the Fall '09 term at Columbia.

Page1 / 3

ps5_fall'11 - Department of Economics Columbia University...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online