Laser disc players have been around for 10 years, but in the last ...

[michelleunicorn]

Laser disc players have been around for 10 years, but in the last several years, the sales have skyrocketed.
 
  Manufacturers attribute the increase in sales to lower prices, increased availability of movies on laser disk, and the appearance of laser disks for rent in video cassette rental stores. Describe this market using the concept of network externalities.

Question 2

Which of the following is TRUE about producers' willingness to offer warranties on products?
 
  A) Producers are equally likely to offer warranties on high-quality and low-quality goods.
  B) Producers are more likely to offer warranties on low-quality goods, because without the signal that the warranty provides, the low-quality good wouldn't sell.
  C) Producers are more likely to offer warranties on high-quality goods, because the expected cost of repairs is lower for those goods.
  D) Producers have an incentive to deal with third-party companies to provide the warranties, so that an impartial view of the product is given to the consumer.
  E) Producers will not offer warranties in any market that suffers from asymmetric information.

[Animal_Goddess]

Answer to Question 1

There is a strong positive network externality at work in the laser disk player market. Laser disk players can only play movies that are prerecorded on disks. As more movies become available, and as disk rental has become a reality, more people are buying the laser disk players.

The sales of laser disk players has also been aided by lower prices, but the effect of the lower prices is not a positive network externality.

Answer to Question 2

C

[michelleunicorn]

TYSM

[alexanderhamilton]

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