Suppose That Sellers Value a Good Car at $10,500 and a Bad

question 58

Multiple Choice

Suppose that sellers value a good car at $10,500 and a bad car at $5,500,and quality is not observed by the buyers.What is the highest price that risk-neutral buyers will offer for a used car if they ignore adverse selection when 60 of the cars are good?

• A) $5,500
• B) $8,000
• C) $8,500
• D) $10,500

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Definitions:

Gross Profit Margin

A financial metric indicating the percentage of revenue that exceeds the cost of goods sold, measuring a company's efficiency in managing its production costs.

Replacement Cost

Replacement cost is the current cost of replacing an asset with a new one of similar kind and quality, often used in determining insurance coverage amounts.

LIFO Layers

In inventory accounting, sections of inventory purchased at different times (and potentially at different costs) under the Last-In, First-Out method.

Inventory Group Basis

An inventory accounting method that aggregates groups or categories of inventory for valuation purposes, rather than valuing items individually.