Answer to Question #212804 in Macroeconomics for Jon

Question

Suppose that type I sellers charged the price of $60 for the portable TV, type II sellers charged $80, type III sellers charged $100, type IV sellers charged $120, and type V sellers charged $140. 

Determine 

the expected lowest price for the TV from one, two, three, four, and five searches and

the marginal benefit from each additional search.

Answer 1

A) Type 1= $60 type 2= $80 type 3= $100 4^th =$120 5^th=$140

find the RANGE:

The range = the highest – the lowest $=140 – 60= \$80$

lowest expected price at 1^st search $= 60 +\frac{ range }{ (number \space of\space searches +1)}$

Lowest expected price at the 1^st search $= 60 + \frac{80 }{1+1} = 100$

2^nd search $=60+\frac{ 80}{2+1} = 86.67$

3^rd search $= 60+ \frac{8}{3+1}= 80$

4^th search $=60+\frac{8}{4+1} = 76$

5^th search $= 60+\frac{8}{5+1}= 73.33$

B) Marginal benefit = 1^st expected lowest price – 2^nd expected lowest price

We start from second search because first one always equals = 0

Second search$=100-86.67=\$13.33$

Third search$= 86.67 – 80 = \$6.67$

Fourth search$= 80 – 76 = \$4$

Fifth search $= 76 – 73.33 = \$2.67$