explain each step please 2. Consider a world in which a risk-neutral monopolist offers a product...
2. Consider a world in which a risk-neutral monopolist offers a product for sale. The product costs c = $60. In each period, the product can either be fully functional or totally defective. It is totally defective with probability 0.2 and is thus fully operative with probability p = 0.8. These events are independent across periods. Consumers, who are all risk-neutral, have valuation of V = $120 for a fully-functional product and zero for a totally defective product. In any...
3. Consider the monopoly's warranty problem under symmetric information analyzed in the lecture. The value of a product whose value to the consumer is V if the product is operative, and is 0 if the product is defective, where V > 0. The probability for a product to be functional is p, where 0 < p 1. But here let's assume that for some reason the monopoly cannot guarantee more than one product replacement in case the product purchased is...