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Price Analysis: Joe wants to buy a DVD player

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Joe's search costs are $7 per search. He wants to buy a DVD player for his wife for Christmas, and the lowest price he's found so far is $200. Joe thinks one-third of the stores charge $300 for a DVD player, one-third charge $200, and one-third charge $185. Should Joe continue to search or buy a DVD player at a price of $200?

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Solution Summary

The solution shows the math to arrive at a decision.

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The expected benefit's of one more search = 2/3($0) + 1/3($200 - $185) = $5,
1/3 probability of ...

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