EBK MICROECONOMICS
2nd Edition
ISBN: 9780134458496
Author: List
Publisher: VST
expand_more
expand_more
format_list_bulleted
Question
Chapter 17, Problem 5P
(a)
To determine
The second-price auction is similar to the uniform price system used by the U.S. treasury to sell its bonds.
(b)
To determine
If the bidder should bid
(c)
To determine
If
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Jan wants to buy a house, but her friend Kan is a much tougher negotiator. They devise a plan where
Kan will tell the seller of the house that she is Jan’s agent and will make all the decisions with respect to
any purchase of the house. They also agree that Kan actually will have no such authority and that Jan is
the only one who will make any decisions relating to purchasing the house. They meet with the seller, and
Kan says that she is Jan’s agent while Jan says nothing. Has an agency been created? Discuss in details the
pros and cons of this case.
Consider a second-price auction (i.e. the highest bid wins, but the winner only pays the second-highest bid), where one bidder is willing
to pay much more for the object than anyone else. These are the individual valuations (each bidder only knows their own)
Bidder 1
Bidder 2
Bidder 3
Bidder 4
Bidder 5
Bidder 6
Bidder 7
What is the difference between the amount Bidder 2 bids and the amount Bidder 2 pays in equilibrium?
50
O $1,315
$5,600
$3,045
$2,015,400
$5,600
$5,900
$1,500
$3,110
$1,315
O $2,015,400
Suppose you have $35,000 in wealth. You have the opportunity to play a game called "Big Bet/Small Bet." In this
game, you first choose whether you would like to make a big bet of $15,000 of a small bet of $5,000. You then roll a
fair die. If you roll a 4, 5, or 6, you win the game and earn $15,000 for the big bet or $5,000 for the small bet. If you
roll a 1, 2, or 3, you lose and lose $15,000 for the big bet and $5,000 for the small bet
the
game
Utility
U₂
U₁
BEL
0
11
LATE
EE
ARTE
Are the Small Bet and Big Bet considered fair bets?
O Big Bet is fair, but Small Bet is not.
No, both are not fair.
Yes, both are fair.
20
OSmall Bet is fair, but Big Bet is not.
G
HA
1
35
D
E
1
1
1
1
1
F
1
U
50 Income
(thousands
of dollars)
Knowledge Booster
Similar questions
- When a famous painting becomes available for sale, it is often known which museum or collector will be the likely winner. Yet, the auctioneer actively woos representatives of other museums that have no chance of winning to attend anyway. Suppose a piece of art has recently become available for sale and will be auctioned off to the highest bidder, with the winner paying an amount equal to the second highest bid. Assume that most collectors know that Valerie places a value of $15,000 on the art piece and that she values this art piece more than any other collector. Suppose that if no one else shows up, Valerie simply bids $15,000/2=$7,500 and wins the piece of art. The expected price paid by Valerie, with no other bidders present, is $________.. Suppose the owner of the artwork manages to recruit another bidder, Antonio, to the auction. Antonio is known to value the art piece at $12,000. The expected price paid by Valerie, given the presence of the second bidder Antonio, is $_______. .arrow_forwardA first-price auction with a reserve price is a type of auction very similarto the first-price auctions we discussed in class. The only different is that, in order for a bidder to win the object, their bid must be at least equal to the reserve price. If all bidders submit bids strictly less than the reserve price, then the auctioneer keeps the object and nobody pays anything. Suppose that Anna participates in a first-price auction with a reserve price equal to $20 and her valuation of the good is $50. Which bids are weakly dominated for Anna?arrow_forwardExplain how an auction to sell a consumer-facing banking division might be used to determine the value of the division.arrow_forward
- 8. Queen Elizabeth has decided to auction off the crown jewels, and there are two bidders: Sultan Hassanal Bolkiah of Brunei and Sheikh Zayed Bin Sultan Al Nahyan of Abu Dhabi. The auction format is as follows: The Sultan and the Sheikh simultaneously submit a written bid. Exhibiting her well-known quirkiness, the Queen specifies that the Sultan's bid must be an odd number (in hundreds of millions of English pounds) between 1 and 9 (that is, it must be 1, 3, 5, 7, or 9) and that the Sultan's bid must be an even number between 2 and 10. The bidder who submits the highest bid wins the jewels and pays a price equal to his bid. (If you recall from Chapter 3, this is a first-price auction.) The win- ning bidder's payoff equals his valuation of the item less the price he pays, whereas the losing bidder's payoff is 0. Assume that the Sultan has a valuation of 8 (hundred million pounds) and that the Sheikh has a valuation of 7. a. In matrix form, write down the strategic form of this game. b.…arrow_forwardWhen a famous painting becomes available for sale, it is often known which museum or collector will be the likely winner. Yet, the auctioneer actively woos representatives of other museums that have no chance of winning to attend anyway. Suppose a piece of art has recently become available for sale and will be auctioned off to the highest bidder, with the winner paying an amount equal to the second highest bid. Assume that most collectors know that Yakov places a value of $35,000 on the art piece and that he values this art piece more than any other collector. Suppose that if no one else shows up, Yakov simply bids $35,0002=$17,500 $35,000 2 = $17,500 and wins the piece of art. The expected price paid by Yakov, with no other bidders present, is. Suppose the owner of the artwork manages to recruit another bidder, Bob, to the auction. Bob is known to value the art piece at $28,000. The expected price paid by Yakov, given the presence of the second bidder Bob, is.arrow_forwardConsider the following bargaining problem: $20 dollars needs to be split between Jack and Jill. Jill gets to make an initial offer. Jack then gets to respond by either accepting Jill’s initial offer or offering a counter offer. Finally, Jill can respond by either accepting Jakes offer or making a final offer. If Jake does not accept Jill’s final offer both Jack and Jill get nothing. Jack discounts the future at 10% (i.e. future earnings are with 10% less than current earnings while Jill discounts the future at 20%. Calculate the Nash equilibrium of this bargaining problem. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forward
- We have a group of three friends: Kramer, Jerry and Elaine. Kramer has a $10 banknote that he will auction off, and Jerry and Elaine will be bidding for it. Jerry and Elaine have to submit their bids to Kramer privately, both at the same time. We assume that both Jerry and Elaine only have $2 that day, and the available strategies to each one of them are to bid either$0, $1 or $2. Whoever places the highest bid, wins the $10 banknote. In case of a tie (that is, if Jerry and Elaine submit the same bid), each one of them gets $5. Regardless of who wins the auction, each bidder has to pay to Kramer whatever he or she bid. Does Jerry have any strictly dominant strategy? Does Elaine?arrow_forwardWe have a group of three friends: Kramer, Jerry and Elaine. Kramer has a $10 banknote that he will auction off, and Jerry and Elaine will be bidding for it. Jerry and Elaine have to submit their bids to Kramer privately, both at the same time. We assume that both Jerry and Elaine only have $2 that day, and the available strategies to each one of them are to bid either$0, $1 or $2. Whoever places the highest bid, wins the $10 banknote. In case of a tie (that is, if Jerry and Elaine submit the same bid), each one of them gets $5. Regardless of who wins the auction, each bidder has to pay to Kramer whatever he or she bid. Does this game have a Nash Equilibrium? (If not, why not? If yes, what is the Nash Equilibrium?)arrow_forwardYou are one of five risk-neutral bidders participating in an independent private values auction. Each bidder perceives that all other bidders’ valuations for the item are evenly distributed between $10,000 and $30,000. For each of the following auction types, determine your optimal bidding strategy if you value the item at $22,000. a. First-price, sealed-bid auction. b. Dutch auction. c. Second-price, sealed-bid auction. d. English auction.arrow_forward
- AIR, an airline company, used to deal only in derivatives of futures and swaps to hedge its jet fuel market risk. However, in the mid2003, AIR started trading in speculative derivative options and took a bullish view of the jet fuel market.The company predicted correctly but by the end of 2003, AIR revised its strategy to a bearish stance.The CEO signed contracts with several banks, buying put options and selling call options, but the prices soared above the strike priceof the call, and AIR faced a large deficit.1. Explain how AIR could have floored the losses through an adequate risk management procedureDespite mark to market losses of $30 million by mid 2004, the CEO increased AIR exposure.In addition, the trading was not disclosed in the financial statements, and AIR accounted for the options at intrinsic value, ignoringthe time value component.From March 2003, AIR started trading options on its own account.AIR was unable to meet some of the margin calls, resulting in the company…arrow_forwardIn the late 1990s, car leasing was very popular in the United States. A customer would lease a car from the manufacturer for a set term, usually two years, and then have the option of keeping the car. If the customer decided to keep the car, the customer would pay a price to the manufacturer, the “residual value,” computed as 60% of the new car price. The manufacturer would then sell the returned cars at auction. In 1999, manufacturers lost an average of $480 on each returned car (the auction price was, on average, $480 less than the residual value). Suppose two customers have leased cars from a manufacturer. Their lease agreements are up, and they are considering whether to keep (and purchase at 60% of the new car price) their cars or return their cars. Two years ago, Antonio leased a car that was valued new at $11,000. If he returns the car, the manufacturer could likely get $5,610 at auction for the car. Valerie also leased a car, valued new at $19,500, two years ago. If she…arrow_forwardIn the late 1990s, car leasing was very popular in the United States. A customer would lease a car from the manufacturer for a set term, usually two years, and then have the option of keeping the car. If the customer decided to keep the car, the customer would pay a price to the manufacturer, the “residual value,” computed as 60% of the new car price. The manufacturer would then sell the returned cars at auction. In 1999, manufacturers lost an average of $480 on each returned car (the auction price was, on average, $480 less than the residual value). Suppose two customers have leased cars from a manufacturer. Their lease agreements are up, and they are considering whether to keep (and purchase at 60% of the new car price) their cars or return their cars. Two years ago, Dina leased a car valued new at $19,000. If she returns the car, the manufacturer could likely get $13,300 at auction for the car. Gilberto also leased a car, valued new at $13,000, two years ago. If he returns the…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning