Sarah buys little stuffed animals for $5 each. They come in different varieties. If the producer stops making (retires) a certain variety, a stuffed animal of that variety will be worth $100; otherwise it is worth $0
There is 25% chance that any variety will be retired. For the purchase of an individual animal, what is the value to Sarah of knowing ahead of time whether or not that variety will be retired?
If Sarah did not know whether a variety is to be retired, her expected value of a purchase is
(.75 ? -5 ) + (.25 ? 95 ) = -3.75 + 23.75 = $20.
If she knows ahead of time that a variety won't be retired, she won't buy one. So, her expected value becomes (.75 ? 0 ) + (.25 ? 95 ) = $23.75.
The information that a variety will or will not be retired is worth $3.75 to her.
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Which one of the following is not a possible barrier to entry high enough to keep competing firms out of a monopoly industry?
A) large economies of scale that result in a natural monopoly B) The monopoly firm has control of a key resource necessary to produce a good. C) a high concentration ratio D) There are important network externalities in supplying a good or service.
Cheese is priced at $5 per pound and wine at $10 per bottle. A consumer who enjoys both cheese and wine will not be in consumer equilibrium until the marginal utility of a pound of cheese is:
a. four times that of wine. b. one-fourth that of wine. c. two times that of wine. d. one-half that of wine.