Reference no: EM131013624
COnsumer has utility: U= v - t|x-z| - mc
v=utility level of consumer's ideal alternative
x= location of the consumer's ideal alternative
t=3 is a disutility parameter when the ideal alternative is not Zi;
c=1 cost of search
m= number of alternatives evaluated before Zi is chosen
Abstaining from choice yield U=0 . the firm produces two types of products Z1=.25 Z2=.75
1. what is the expected value of choosing at random for an agent with x=.25
2.for what values of v would an agent with x=.25 prefer choosing at random from the alternative to abstaining from choice and getting U=0?
3. discuss qualitatively, why in the Kuksov and Villas Boas 2010 model, more alternatives may discourage participation.
4. in terms of the variables C and t above, when might more alternatives increase the value of choice for agents?
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