Consumers value high-quality dirt bikes at $6,000 and low-quality dirt bikes at $2,500. The supply of used high-quality dirt bikes is Q_H = 0.5P_H - 2,000, while the supply of used low-quality dirt bikes is Q_L = P_L - 1,000. Potential buyers cannot distinguish between the two. Buyers base their willingness to pay on the belief that half the used dirt bikes are high quality. At the buyers' willingness to pay, sellers will offer _____ high-quality bikes and _____ low-quality ones. A) 125; 3,250 B) 2,000; 2,000 C) 450; 900 D) 3,000; 1,500

Question

Quizplus · Accepted Answer

Buyers' willingness to pay is based on the average value: (0.5 * $6,000) + (0.5 * $2,500) = $4,250. For high-quality bikes, Q_H = 0.5 * $4,250 - 2,000 = 125. For low-quality bikes, Q_L = $4,250 - 1,000 = 3,250.

Consumers Value High-Quality Dirt Bikes at $6,000 and Low-Quality Dirt