(Solved):The supply of used high-quality motorcycles is Q_H = 0.2P_H – 1000, while the supply of used low-quality motorcycles is Q_L = 0.5P_L – 1000. In the used-motorcycle market, potential buyers cannot d… View Answer…

 

Question

The supply of used high-quality motorcycles is {eq}Q_{H} = 0.2P_{H} – 1000

{/eq}, while the supply of used low-quality motorcycles is {eq}Q_{L} = 0.5P_{L} – 1000

{/eq}. In the used-motorcycle market, potential buyers cannot distinguish the difference between a high-quality and low-quality motorcycle.

A) Consumers value high-quality motorcycles at $10,000 and low-quality motorcycles a $6,000. If consumers believe there is a 50% probability that a used motorcycle is higher quality, what price are

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