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

question 16

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 quality until they buy it.An owner can either take his car to an appraiser and pay the appraiser $100 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 the car's value is at least

• A)$2,000.
• B)$100.
• C)$300.
• D)$200.
• E)$400.

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Definitions:

Total Costs

The sum of all expenses incurred in the production of goods or services, including direct and indirect costs, both variable and fixed.

Step-Down Method

A method of allocating costs whereby one service department’s cost is allocated to all remaining service departments and operating departments, and so on, until all service department costs are allocated to final products.

Death Spiral

A situation occurring when transfer prices include fixed costs and users reduce their use of the internal product or service. This further increases the transfer price (based on average cost) and more users reduce their demand.