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Individual Problem 17-4: Your company has a customer who is shutting
down a production line, and it is your responsibility to dispose of the
extrusion machine. The company could keep it in inventory for possible
future product and estimates that the reservation value of $250,000.
Your dealings on the second-hand market lead you to believe that these
is a 0.4 chance a random buyer will pay $300,000 a 0.25 chance the
buyer will pay $350,000, a 0.1 chance the buyer will pay $400,000, and
a 0.25 chance it will not sell. If you must commit to a posted price, what
prices maximizes profit?
Froeb et al.’s Chapter 19:
b) Individual problems: 19–5 and 19–6.
Individual Problem 19-5: Soft selling occurs when a buyer is skeptical of
the usefulness of a product and the seller offers to set a price that
depends on realized value. For example, suppose you’re trying to sell a
company a new accounting system that will reduce costs by 10%.
Instead of naming that price, you offer to give them the product in
exchange for 50% of their cost savings. Describe the information
asymmetry, the adverse selection problem, and why soft selling is a
successful signal.
Individual Problem 19-6: You need to hire some new employees to staff
your start-up venture. You know that potential employees are distributed
throughout the population as follows, but you can’t distinguish among
them:
Employee Value
Probability
$50,000
0.25
$60,000
0.25
$70,000
0.25
$80,000
0.25
What is the expected value of five employees you hire?
Salvatore's Chapter 15:
a) Discussion Questions: 7.
b) Problems: 8, 10, and spreadsheet problem 1.
Discussion Question 7: