As the manager of Pelican Point Financial Group, you are unable to determine whether any given individual is a high- or low-volume transaction investor. To deal with this issue, you design a self-selection mechanism that permits you to identify each type of investor. You offer two types of plans for customers with more than $1.5 million in assets: one plan has an annual maintenance fee but offers a large number of “free” transactions (call this the “Free Trade” Account); the other plan has no annual maintenance fee but charges for each transaction (call this the “Free Service” Account).
Determine the specifics for each plan as listed below:
“Free Trade” Account:
Annual maintenance fee = $
Number of “free” transactions =
Price for each transaction in excess of the number of “free” transactions = $
“Free Service” Account:
Price per transaction = $