Question

suppose that two-thirds of the stores in a market charge $800 for a certain brand of mountain bike while one-third of the stores charge $500. if a customer is at a store charging $800 and the cost of an additional search equals $125, then

Answer 1

Considering search costs and potential savings, a customer can save money if they find a store charging less, but risks spending more if the search leads to another store with the same higher price.

Step-by-step explanation:

The question focuses on comparing the cost of additional search with potential savings from finding a lower price. If two-thirds of the market charges $800 for a mountain bike and one-third charges $500, the expected cost when choosing a store at random would be calculated as:

(2/3 * $800) + (1/3 * $500) = ($533.33 + $166.67) = $700.

However, if a customer is already in a store that charges $800, they must consider the cost of searching for another store which is $125. If they choose to search and find a store that charges $500, their total cost would be $500 + $125 = $625, saving them $175 compared to buying it at $800 without searching. On the other hand, if their search leads them to another store charging the same $800 price, their total cost would be $800 + $125 = $925. This situation presents a search cost dilemma, wherein the customer must weigh the potential savings against the additional cost of searching.