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

question 57

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.
How can owners of a solid foundation home signal high quality credibly?

• A)Keep it on the market indefinitely at $200,000 because eventually buyers will catch on.
• B)Advertise in the national TV stating the quality of the house.
• C)Lower their price to $196,000.
• D)Offer a warranty to fix any slab problems that develop in the next 12 months.

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Definitions:

Vernix Caseosa

A white creamy biofilm covering the skin of the fetus during the last trimester of pregnancy, protecting the newborn's skin.

Lanugo

Fine, soft, unpigmented fetal hair.

Colostrum

Thin, white fluid; the first milk secreted by the breast at the termination of pregnancy; contains less fat and lactose than the milk secreted later.

Fetal Hair

Also known as lanugo, it is the fine, soft hair that covers the body of a fetus as a form of insulation.