Paying for Information. You are willing to pay $7,000 for a high-quality car a plum. The current price of used cars is $4,000, and 4 of 5 cars in the market are lemons, meaning that 1 in 5 is a plum.

a. Suppose you could pay a finders fee to a personal shopper/mechanic who will find you a plum at a price of $4,000. What is the maximum you are willing to pay as a finders 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 $400, is it worth the money?

c. How would your answer to part (b) change if only 1 out of 10 used cars was a plum?