Based on the Following Table,what Is the Highest Price That

question 130

Multiple Choice

Based on the following table,what is the highest price that risk-neutral buyers will offer for a used car if they recognize adverse selection?
$$\begin{array} { | l | l | l | } \hline \text { Types of Cars } & \text { Buyer's Valuation } & \text { Seller's Valuation } \\\hline \begin{array} { l } \text { Good } \\\text { (50\% probability) }\end{array} & 10,000 &9,500 \\\hline \begin{array} { l } \text { Bad } \\\text { (50\% probability) }\end{array} & 5,000 & 4,500 \\\hline\end{array}$$

• A) $7,500
• B) $5,000
• C) $7,000
• D) $4,500

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Definitions:

Rate of Return

The increase or decrease in value of an investment throughout a determined period, shown as a percent of the investment’s initial cost.

Natural Monopolies

A market situation where a single supplier, due to unique resources, technology, or economies of scale, can provide a product or service at a lower cost than any potential competitor.

Regulatory Agency

A governmental body responsible for enforcing specific laws and regulations to protect public interest in areas such as health, safety, and the environment.

Antitrust Policy

Regulations and laws that prevent monopolistic business practices, promote fair competition, and protect consumers from abusive behaviors by large companies.