1. Which of the following goods does not exhibit rivalness in consumption?
a. Free nachos for everyone in class.
b. Free music for everyone in class.
c. Free notebooks for everyone in class.
d. Free mentoring for everyone in class.
2. You sell backup generators with a one-year guarantee to clinics. You offer an extended warranty that covers the next three years. Repairs averaging $4,000 are needed for 2% of unit during this three year period. You charge $400 for the extended warranty, and about 20% of your clients buy it. The extended warranty has been a consistent money loser. Claims average $1,000 per customer. How could this be (choose all that apply)?
a The expected claims exceeds $1000
b. Your customers are probably risk seeking
c. Demand for the extended warranty is inelastic
d. Your firm is probably experiencing adverse selection