Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 18, Problem 1MC
To determine
Bid value.
Expert Solution & Answer
Explanation of Solution
In the second price auction, the optimal strategy of bidding should be equal to the person’s value of the product. Hence, the best bid price is $800. Thus, option ‘b’ is correct.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
10
Use the expected value information to illustrate how having more bidders in an oral auction will likely result in a higher winning bid.
PJ has been owning a City Golf, model 2004 for the past 15 years and now plans to sell it. Town auctioneers has offered to sell his car at their next auction. This is the first time PJ is hearing at an auction.
PJ has approached you to explain to him what auction means and asked you if he should sell his car on auction or not. Briefly explain to PJ
Explain why a player in a sealed-bid, second-price auction would never submit a bid that exceeds his or her true value of the object being sold. (Hint: What if all players submitted bids greater than their valuations of the object?)
Chapter 18 Solutions
Managerial Economics: A Problem Solving Approach
Knowledge Booster
Similar questions
- In a sealed-bid, second-price auction with complete information, the winner is the bidder who submits the second-highest price, but pays the price submitted by the highest bidder. Do you agree? Explain.arrow_forwardTrue or false: keeping his maximum willingness to pay for a yacht in mind, Tim will buy the yacht because it will be worth more to him than its market price of $350,000arrow_forwardYour store sells an item desired by a consumer. The consumer is using an optimal search strategy; the accompanying graph shows the consumer’s expected benefits and costs of searching for a lower price. a. What is the consumer’s reservation price? b. If your price is $3 and the consumer visits your store, will she purchase the item or continue to search? Explain. c. Suppose the consumer’s cost of each search rises to $16. What is the highest price you can charge and still sell the item to the consumer if she visits your store? d. Suppose the consumer’s cost of each search falls to $2. If the consumer finds a store charging $3, will she purchase at that price or continue to search?arrow_forward
- Freddie sees a watch for sale in the window of a shop with a price tag of $50 attached. Explain whether this is an offer or an invitation to treatarrow_forwardWhich of the following gambles is “unfair”? a. A game that promises to pay you $1 if a coin comes up head and cost you $1 if a coin comes up tail, with no entry fee. b. A game that promises to pay you $10 if a coin comes up head and cost you $1 if a coin comes up tail, with no entry fee. c. A game that promises to pay you $10 if a coin comes up head and cost you $1 if a coin comes up tail, with an entry fee of $4.50 for the right to play. d. All of the above.arrow_forwardSay that you are bidding in a sealed-bid auction and that you really want the item being auctioned. Winning it would be worth $500 to you. Say you expect the next-highest bidder to bid $300.a. In a standard “highest-bid” auction, what bid would a rational person make? The rational choice is to bid $500 since that is what the item is worth to you. The rational choice is to bid a little bit more than $300 because that is the expected next-highest bid. The rational choice is to bid just under $500 so that you have a higher chance of winning the auction and would still have a net benefit. The rational choice is to bid over $500 to guarantee that you win the item. b. In a Vickrey auction, what bid would he make? The rational choice is to bid slightly more than $500. The rational choice is to bid $500. The rational choice is to bid slightly less than $500. The rational choice is to bid slightly more than $300.arrow_forward
- Please discuss the long question on Housing Prices ( What is the market value of the house after repairs are done?) from Assignment 1. Post under this Discussion 1 thread. Discuss what concept you are using to answer the question. What formula you are using. How to do the arithmetics to get the answer. The long question is : The winning bid for a house at a bank auction was $10. But the house was not in good condition. The couple had to pay $65,000 in explicit expenses and spend many months doing the repairs. The time cost or lost wages are $10,000. What is the market value of the house after repairs are done?arrow_forwardConsider the used car market with imperfect information. There are 10 bad quality cars (lemons) and 12 good quality cars. The value of a bad car is $8,000 and the value of a good car is $20,000. What is the equilibrium price? Group of answer choices $13,300 $21,818.18 $13,454.54 $14,000arrow_forwardWhy it is unwise to bid less than your valuation of the good in a sealed bid second-price auction. In the first price sealed bid auction, a player gets a positive payoff by doing bid shading. Explain the tradeoff between biding lower than the value of the object and biding very close to value of the object.arrow_forward
- David wants to auction a painting, and there are two potential buyers. The value for eachbuyer is either 0 or 10, each value equally likely. Suppose he offers to sell the object for $6, and the two buyers simultaneously accept or reject. If exactly one buyer accepts, the object sold to that person for $6. If both accept, the object is allocated randomly to the buyers, also for $6. If neither accepts, the object is allocated randomly to the bidders for $0. (a) Identify the type space and strategy space for each buyer. (b) Show that there is an equilibrium in which buyers with value 10 always accept. (c) Show that there is an equilibrium in which buyers with value 10 always reject.arrow_forwardWhen real estate agents sell their own, rather than clients', houses, they leave the houses on the market for a longer time (10 days longer on average) and wind up with better prices. Suppose that real estate agents earn a commission equal to 3% of the sale value of each house that they help sell. Suppose a real estate agent has an offer on a house of $300,000. The agent can get a 3% higher offer with more effort and by leaving the house on the market for a few more weeks.arrow_forwardWrite short notes explaining the meaning and significance of the following concepts in economic theory:(a) Expected utility maximisation;(b) X efficiency and technical efficiency; and(c) Perfect contestability.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax