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heatwave9856
heatwave9856
25.10.2019 • 
Business

1. suppose that there are two types of houses for sale: those with solid foundations and those with cracked foundations. in all other respects, the two types of houses are identical. houses with solid foundations are worth $200,000, while those with cracked foundations are worth $200,000 minus the $20,000 to fix the crack, or $180,000. sellers know which type of house they have, but buyers cannot detect whether the foundation has a crack. suppose that 80 percent of the houses for sale have a solid foundation and 20 percent of the houses for sale have a cracked foundation. if buyers are risk-neutral and know the that 80 percent of the houses for sale have a solid foundation while 20 percent have a cracked foundation, then the owners of houses with a solid foundation will find that:

a. potential buyers are offering more than $200,000.
b. potential buyers are offering $200,000.
c. potential buyers are offering $180,000.
d. it is not worthwhile to sell their houses.

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