Paying for Information. You are willing to pay $10,000 for a high-quality car—a plum. The current price of used cars is $6,000, and 9 of 10 cars in the market are lemons, meaning that 1 of 10 is a...

Paying for Information. You are willing to pay $10,000 for a high-quality car—a plum. The current price of used cars is $6,000, and 9 of 10 cars in the market are lemons, meaning that 1 of 10 is a plum.

a. Suppose you could pay a finder’s fee to a personal shopper/mechanic who will find you a plum at a price of $6,000. What is the maximum you are willing to pay as a finder’s fee?

b. As you shop for a used car, you will bring each car you consider to your mechanic, who will thoroughly inspect the car and tell you for certain whether it is a plum or a lemon. If the price per inspection is $200, is it worth the money?

c. How would your answer to part (b) change if only 1 out of 5 used cars was a plum and the inspection cost was $400?