Question

Use the following information in answering questions 9- 13. Assume persons of type 1 value quality level z and the product itself such that the reservation price for one unit is 5+3z. Similarly, for a person of type 2 the reservation price is 10 + z. The cost of producing the product is 2 and the cost of each unit of z is 2. Assume that z can be equal to 0 or 1 or 2 9. The optimal quality to provide if selling only to a person of type 1 is z a) 0 b) 1 c) 2 d) a tie between 1 and 2 e) a tie between 0, 1 and 2 10. The optimal quality to provide if sellling only to a person of type 2 is z a) 0 b) c) 2 d) a tie between 1 and 2 e) a tie between 0, 1 and 2

Answer 1

(9) Seller's froLit (Resenvatien price Type 1 Total cost) 5+32-(at 2) 5+32-2-22 -3+2 the profit choose 'z which Luill ue Seller suill uant to maximiLe Hene it ull him marimum protit ue haue Henu ter diterent leul a2 Sellu's profit 4 or z1 ypeld marimumm brotit Se lorract ophen (c) Z2ill is ansuar

t0) Seller's protitResen vahen prica fType o To tal lost (2+22) 는 10+z 10+ 2 - 2-2z for ditferent huels of z Sellu's profit So

Q = Z. yields mmaximum protit. Se iarract amsue is ophen (aj.