Suppose That in New Crankshaft, Pennsylvania, the Quality Distribution of the 4,000

question 7

Multiple Choice

Suppose that in New Crankshaft, Pennsylvania, the quality distribution of the 4,000 used cars on the market is such that the number of used cars of value less than V is V/2.Original owners must sell their used cars.Original owners know what their cars are worth, but buyers can't determine a car's value until they buy it.An owner can either take his car to an appraiser and pay the appraiser $400 to appraise the car (accurately and credibly) or sell the car unappraised.In equilibrium, car owners will have their cars appraised if and only if their value is at least

• A)$400.
• B)$2,000.
• C)$1,200.
• D)$800.
• E)$1,600.

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Definitions:

Creditor

An entity or person to whom money is owed by a debtor for goods supplied or loans given.

Discount Rate

The discount rate is the interest rate used in calculating the present value of future cash flows, often reflecting the risk and time value of money in investment appraisals.

Interest Expense

The cost incurred by an entity for borrowed funds over a period, typically represented as an annual percentage.

Operating Expense

Expenses incurred in the normal operation of a business, excluding the cost of goods sold, such as rent, salaries, and utilities.