What is the maximum price a consumer will be willing to pay

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Reference no: EM13774446

Bright horizons a monopoly firm, offers a selection of light bulbs for sale. The product costs c = $40 to produce. The product may fail with probability 0.2, hence it is fully operative with probability = 0.8. This probability is public information in the sense that it is known to the seller and all buyers. The product can either be fully functioning or totally defective. Consumers are willing to pay up to V = $150 for a fully-functioning product. If the product is found to be defective, consumers do not gain any utility. Solve the following problems.

(a) What is the maximum price a consumer will be willing to pay for a product with no-warranty?

Reference no: EM13774446

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