Difference between them is in annual electricity consumption

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1. You have narrowed your choice of which refrigerator to purchase down to two choices. Both are used, and both will last two years. The difference between them is in the annual electricity consumption. The white one has a price of $100 and will cost $50/year in electrical costs to keep running. The avocado one has a price of $75 but will cost $70/year for electricity.

(a) If you choose the avocado one over the white one, what does this say about your discount rate?

(b) Now imagine that the avocado refrigerator costs only $40 but also lasts only one year instead of two. (To get the services of avocado refrigerators over the same period of time as you get with a white one, you have to buy two, purchasing refrigerators in both year 0 and year 1.) If you still prefer the avocado one, what does this say about your discount rate?

Reference no: EM13833478

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