Question

You are in the market for a used car. At a used car lot, you know that the Blue Book value of the car you are looking at is between \(15000 and \)19000. If you believe the dealer knows as much about the car as you do, how much are you willing to pay? Why? Assume that you care only about the expected value of the car you will buy and that the car values are symmetrically distributed.

Short answer

Average price, $17000 can be paid for a randomly selected car. We can obtain more information about the car that we would like to buy because it is assumed that in competitive market all necessary information is available.

Step-by-step solution

Content Introduction

A competitive market is one where there are various makers that contend with each other in desires to give labor, products and data or information a purchasers needs.

Content Explanation

We are willing to pay average price which is $\$17,000$.

For example: if $\$15,000$have $0.5$chances and likewise $\$19,000$also have $0.5$chances then the total comes out to be $(\$15000x0.5+\$19000x0.5=\$17000)$.

In a competitive market, all important data is thought to be accessible.