Answered

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Suppose that there are two types of houses for sale: those with solid foundations and those with cracked foundations. In all other respects, the two types of houses are identical. Houses with solid foundations are worth $200,000, while those with cracked foundations are worth $200,000 minus the $20,000 to fix the crack, or $180,000. Sellers know which type of house they have, but buyers cannot detect whether the foundation has a crack. Suppose that 80 percent of the houses for sale have a solid foundation and 20 percent of the houses for sale have a cracked foundation. If buyers are risk-neutral and know the that 80 percent of the houses for sale have a solid foundation while 20 percent have a cracked foundation, then how much will buyers be willing to pay for a house

Sagot :

abiolataiwo2015

Answer:

$196,000

Explanation:

Calculation to determine how much will buyers be willing to pay for a house

Amount willing to pay=(0.80)($200,000) + (0.20)($180,000)

Amount willing to pay=$160,000+$36,000

Amount willing to pay=$196,000

Therefore The amount that the buyers will be willing to pay for a house is $196,000

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