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
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Question
Chapter 18, Problem 2MC
To determine
Bid value.
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Students have asked these similar questions
A 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?
Say 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.
A famous local baker has approached you with a problem. She is only able to make one wedding cake each day and 5 people have requested a wedding cake on the same day. Rather than pick randomly which person she will sell the cake to, she decides to have an auction.
Is this auction more representative of a private value or common value auction? Why?
Which auction method(s) do you recommend the baker choose to maximize the amount of money she can make, and why?
Chapter 18 Solutions
Managerial Economics: A Problem Solving Approach
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Similar questions
- Explain the differce between oral auctions and second-price auctionsarrow_forwardIn 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_forwardSee attachments for question context. Question: Some people advocated the following modifiction of the auction rule. A bidder cannot bid for only one object, i.e., if at some point in time he withdraws from the bidding race for one object, he automatically withdraws the race for the other object. Every other aspect of the auction, including how prices increase over time, does not change. What should a bidder do if his valuation for the two objects are 50 and 60, respectively? Explain. Does the auction lead to an efficient allocation? Explain.arrow_forward
- How to solve this question? Consider an antique auction where bidders have independent private values. There are two bidders, each of whom perceives that valuations are uniformly distributed between $100 and $1,000. One of the bidders is Sue, who knows her own valuation is $200. What is Sue's optimal bidding strategy in a Dutch auction?arrow_forward10 Use the expected value information to illustrate how having more bidders in an oral auction will likely result in a higher winning bid.arrow_forwardExplain 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?)arrow_forward
- Choice under uncertainty. Consider a coin-toss game in which the player gets $30 if they win, and $5 if they lose. The probability of winning is 50%. (a) Alan is (just) willing to pay $15 to play this game. What is Alan’s attitude to risk? Show your work. (b) Assume a market with many identical Alans, who are all forced to pay $15 to play this coin-toss game. An insurer offers an insurance policy to protect the Alans from the risk. What would be the fair (zero profit) premium on this policy? can you help me for par (b) plase?arrow_forwardChoice under uncertainty. Consider a coin-toss game in which the player gets $30 if they win, and $5 if they lose. The probability of winning is 50%. (a) Alan is (just) willing to pay $15 to play this game. What is Alan’s attitude to risk? Show your work.(b) Assume a market with many identical Alans, who are all forced to pay $15 to play this coin-toss game. An insurer offers an insurance policy to protect the Alans from the risk. What would be the fair (zero profit) premium on this policy? i need help with question B please.arrow_forwardthere are 4,000 people that commute into a city each day. There is a local road that takes 30 minutes regardless of traffic. There is also a highways that takes 5 minutes when there is no traffic but where each additional driver adds .01 minute. a) Find the Nash Equilibria b) How many drivers should use the local road to maximize the societal benefit?arrow_forward
- Why 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_forwardQuestion 1 Consider a first-price sealed bid auction of a single object with two biddersj = 1,2 and no reservation price. Bidder 1′s valuation is v1 = 2, and bidder 2′s valuation isv1 = 5. Both v1 and v2 are known to both bidders. Bids must be in whole dollar amounts.In the event of a tie, the object is awarded by a flip of a fair coin.(a) Find an equilibrium of this game.(b) Is the allocation of your answer to (a) efficient?arrow_forwardConsider a first-price, sealed-bid auction, and suppose there are only three feasible bids: A bidder can bid 1, 2, or 3. The payoff to a losing bidder is zero. The payoff to a winning bidder equals his valuation minus the price paid (which, by the rules of the auction, is his bid). What is private information to a bidder is how much the item is worth to him; hence, a bidder’s type is his valuation. Assume that there are only two valuations, which we’ll denote L and H, where H > 3 > L > 2. Assume also that each bidder has probability .75 of having a high valuation, H. The Bayesian game is then structured as follows: First, Nature chooses the two bidders’ valuations. Second, each bidder learns his valuation, but does not learn the valuation of the other bidder. Third, the two bidders simultaneously submit bids. A strategy for a bidder is a pair of actions: what to bid when he has a high valuation and what to bid when he has a low valuation. a. Derive the conditions on H and L…arrow_forward
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