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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Chapter 18, Problem 5MC
To determine
Bidding strategy.
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Your company is competing in a sealed-bid auction for a package of items your company values at $30,000. You expect the bids to be uniformly distributed between $20,000 and $30,000.
a. Fill in the following table
Bid
Profit
P(Win)Competitors = 2
E(Profit)Competitors = 2
P(Win)Competitors = 3
E(Profit)Competitors = 3
$20,000
$22,000
$24,000
$26,000
$28,000
$30,000
b. If there are two competitors, what is the optimal bid?
c. If there are three competitors, what is the optimal bid?
1\2
Y
Z
A
7,4
3,5
B
8,10
1,9
C
3,12
5,4
Suppose Player 1 believes Player 2 will pay a mixed strategy θ2 (Y,Z) = (θ, 1- θ).
Find a range of the frequency of play of Y (i.e., values of θ) that makes the pure strategy A a best response.
The minimum value of θ = ________
The maximum value of θ = ________
1. One time your company needs cash and plans to auction off subsidiaries to the highest bidder. Mention the type of auction that will maximize your company's revenue from the sale if:a. Bidder is neutral on risk and has independent personal judgment?b. Bidder is risk-neutral and has an affiliated valuation estimate?
2. A manager will use a business strategy so that in the long run the company's profits will increase. The entry of competitors has an impact on the unfavorable profitability of the company. To deal with the entry of new competitors, a manager can consider the limit pricing strategy.a. Explain what is meant by limit pricing!b. How can the limit pricing strategy be effective?
3. It is known that the demand function of "I like" brand dry food companies in the monopolistic competition market is P = 100 - 2Q, while the cost function is TC = 5 + 2Q. in this case P = price level, Q = output level, and TC = total cost.a. Determine the combination of prices and production levels…
Chapter 18 Solutions
Managerial Economics: A Problem Solving Approach
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