Find out how much each one charges to park car

Assignment Help Econometrics

Reference no: EM13220065

It's late at night and you have just arrived in an unfamiliar town. There is a strip of dozens of motels, but none of them have posted prices outside. They're all chain motels, and you're pretty sure that they all have the same kind of rooms. You've stayed in motels a lot, so you feel pretty sure that each one has a 50% chance of asking around $100 a night, and a 50% chance of asking $80 a night. In order to find out how much each one charges, you need to park your car, get out, ring the bell, wait for the attendant, and have them quote you a price. This process takes 10 minutes and you're really tired: you know that you won't ask at more than two motels. You go to the first motel and ask about the price. The attendant quotes you $100. Suppose you rate the opportunity cost of getting back in your car and sampling another price at $5. Assuming you're risk-neutral, what should you do? A. Sample another price. B. Stay at this motel.

Reference no: EM13220065

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