Two Types of Existing Houses Are for Sale: Ones with a Cracked

question 46

Multiple Choice

Two types of existing houses are for sale: ones with a cracked foundation and ones without.In all other respects,they are identical.Houses without cracked foundations are worth $200,000 while those with cracked foundations are worth $200,000 minus the $20,000 to fix the crack or $180,000.The frequency of solid foundations is 80%.Sellers know which type of house they have but buyers cannot detect a crack.No seller "must" sell his house in order to move and thus no one accepts anything less than its value.
If potential buyers offer their reservation price,owners of houses with solid foundations will find that

• A)buyers are offering more than $200,000.
• B)buyers are offering exactly $200,000.
• C)buyers are offering exactly $180,000.
• D)it is not worth it to sell their house.

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