Question

Sorry about the quality!

The Abominable Snowman has sold a million copies of his new book of lifestyle advice. Unfortunately, due to a production glitch, 40% of them are missing the last chapter. Used book dealers cannot tell the difference until after they purchase the book. The used book market is highly competitive, with many dealers. The current owners of good copies of the book will sell their books if and only if they get at least $15, and the owners of bad copies will sell theirs if and only if they get at least $2. A good copy is worth $20 to a dealer, and a bad one is worth $5. If used book dealers offer $14 for used books, which of the following will happen? O Only the owners of bad copies will sell; total profts to the dealers will be -$9 million. O Only the owners of bad copies will sell; total profits to the dealers will be -$3.6 million. Only the owners of good copies will sell; total profits for the dealers will be $600,000. O Only the owners of bad copies will sell: total profits for the dealers will be $0. All owners wll sell; total profits for the dealers will be $0

Answer 1

Answer option B)

as at P = 14, only owners of bad copies will sell , since owners of good copies demand at least 15

Thus options C & E are wrong.

Now as dealer is getting only bad copies & he values it 5, so he will incur loss

So D is false

Now dealer is paying 14 , for books , he values as 5

Thus loss of 14-5 = 9 per book

So total expected loss= .4*9 = 3.6 million

( As total 40% of 1 million books are bad)