cdon. In 1999, manufacturers lost $480 on each returned car (the auction price was, on average, $480 less than the residual value). customers have leased cars from a manufacturer. Their lease agreements are up, and they are considering whether to keep (and D% of the new car price) their cars or return their cars. Two years ago, Becky leased a car valued new at $18,500. If she returns the car, urer could likely get $12,950 at auction for the car. Eleen also leased a car, valued new at $19,000, two years ago. If she returns the car, rer could likely get $9,500 at auction for the car, Ing table to Indicate whether each buyer is more Iskely to purchase or retum the car. ep and Purchase Car Return Car urer will lose money (at auction, relative to the resldual value of the car) if V returns the car Instead of keeping and Setting a more accurate residual price of each car would help attenuate the problems of adverse selection.
cdon. In 1999, manufacturers lost $480 on each returned car (the auction price was, on average, $480 less than the residual value). customers have leased cars from a manufacturer. Their lease agreements are up, and they are considering whether to keep (and D% of the new car price) their cars or return their cars. Two years ago, Becky leased a car valued new at $18,500. If she returns the car, urer could likely get $12,950 at auction for the car. Eleen also leased a car, valued new at $19,000, two years ago. If she returns the car, rer could likely get $9,500 at auction for the car, Ing table to Indicate whether each buyer is more Iskely to purchase or retum the car. ep and Purchase Car Return Car urer will lose money (at auction, relative to the resldual value of the car) if V returns the car Instead of keeping and Setting a more accurate residual price of each car would help attenuate the problems of adverse selection.
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter19: The Problem Of Adverse Selection
Section: Chapter Questions
Problem 19.1IP
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