Buyer A has offered $20,000 for a painting you are trying to sell.You are about to approach Buyer B whose best offer,you believe,might be anywhere between $16,000 and $24,000,with all values in between being equally likely.After hearing B's price,you will pick the higher of the two offers.What is the price that you expect to get for the painting?
A)$20,000
B)$21,333
C)$22,000
D)$22,680
E)$23,700

Question

Quizplus · Accepted Answer

The expected value of Buyer B's offer is the average of $16,000 and $24,000, which is $20,000. Since you will choose the higher offer, the expected price is the average of $20,000 (Buyer A's offer) and the expected value of Buyer B's offer, which is $21,333.

Buyer a Has Offered $20,000 for a Painting You Are