Asked by
Haleigh Trotter
on Dec 01, 2024Verified
A dealer decides to sell an antique automobile by means of an English auction with a reservation price of $100.There are two bidders.The dealer believes that there are only three possible values that each bidder's willingness to pay might take, $7,300, $2,600, and $100.Each bidder has a probability of 1/3 of having each of these willingnesses to pay, and the probabilities of the two bidders are independent of the other's valuation.Assuming that the two bidders bid rationally and do not collude, the dealer's expected revenue from selling the automobile is
A) $3,333.33.
B) $2,100.
C) $2,600.
D) $4,950.
E) $7,300.
Reservation Price
Reservation price is the maximum price a consumer is willing to pay for a product or service.
English Auction
A common auction format where the price starts low and is bid upward, with the highest bid at the end of the auction winning.
Willingness To Pay
The maximum amount an individual is prepared to spend for a good or service, reflecting their valuation of it.
- Comprehend the principle and operational mechanics behind English auctions.
- Examine the anticipated income from auctions varying in minimum bid requirements.
- Comprehend how reservation prices influence the results of auctions.
Verified Answer
JC
Learning Objectives
- Comprehend the principle and operational mechanics behind English auctions.
- Examine the anticipated income from auctions varying in minimum bid requirements.
- Comprehend how reservation prices influence the results of auctions.