Suppose There Are Four Boats Available at an Auction

question 72

Multiple Choice

Suppose there are four boats available at an auction. The sellers know the quality of their boats but the prospective buyers do not. The buyers know that two of the boats are high quality and two of the boats are low quality. Buyers value high-quality boats at $100,000 and low-quality boats at $60,000. Sellers value high-quality boats at $80,000 and low-quality boats at $40,000. If the auctioneer sets a price per boat at $50,000, how many boats and of which type will sellers make available?

• A) all four boats
• B) two high-quality boats
• C) two low-quality boats
• D) one high-quality and one low-quality boat

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Definitions:

Price L

A specific notation used to denote a certain price level in economic models or discussions.

Factor Prices

The costs associated with the inputs used in production, such as labor wages and capital rental rates.

Production Function

An economic model that describes how inputs are transformed into outputs by a firm.

Units Of Output

A measurement of productivity that represents the total quantity of goods or services produced by a firm or economy.