Which the buyer will choose to have a contract written

Reference no: EM13755330

A buyer of a product knows that 20 percent of sellers are dishonest and will sell a defective product (if they can get away with it). The seller has to pay $15 to buy the product. One problem for the buyer is that she cannot tell if the product is defective until after she has bought it and all sellers look identical to the buyer ex ante. The buyer has two choices. The buyer can get a contract written up that ensures that she receives a quality product (from all sellers), but the writing up the contract costs her $10. Alternatively she can not get a contract written up, in which case she will always receive a defective product if she is unlucky enough to trade with a dishonest seller.

What is the minimum benefit B for which the buyer will choose to have a contract written?

a. 30
b. 40
c. 50
d. 60
e. None of the above.

please provide calculative process.

Reference no: EM13755330

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