There Are Two Types of Used Cars, High Quality and Low

question 24

Multiple Choice

There are two types of used cars, high quality and low quality.Buyers cannot distinguish the two types until after they have purchased them.Owners of high-quality cars will sell them if the price is $2,000 or higher.Owners of low-quality cars will sell them if the price is $1,000 or higher.Buyers value a high-quality used car at $4,266 and a low-quality used car at $1,200.Suppose that 30% of used cars are of high quality and 70% of used cars are of low quality.In equilibrium,

• A)only high-quality used cars will be sold.
• B)only low-quality used cars will be sold.
• C)all used cars will be sold.
• D)no used cars will be sold.
• E)high-quality used cars will sell for a uniformly higher price than low-quality used cars.

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Definitions:

Average Total Cost

The total cost divided by the number of units produced, representing the cost per unit.

Average Variable Cost

The cost per unit of output that varies with the level of production, typically including labor and material costs.

Marginal Cost

The cost added by producing one additional unit of a product or service.

Total Fixed Cost

The total of all expenses that do not vary with the amount of production or output.