Asked by
Geovanny Ortiz
on Dec 01, 2024
Verified
A dealer decides to sell an oil painting by means of an English auction with a reservation price of slightly below $75,000.If she fails to get a bid as high as her reservation price, she will burn the painting.There are two bidders.The dealer believes that each bidder's willingness to pay will take one of the three following values: $90,000, $75,000, and $30,000.The dealer believes that each bidder has a probability of 1/3 of having each of these three values.The probability distribution of each buyer's value is independent of that of the other's.Assuming that the two bidders bid rationally and do not collude, the dealer's expected revenue from selling the painting is slightly less than
A) $75,000.
B) $69,000.
C) $60,000.
D) $82,500.
E) $65,000.
Reservation Price
The maximum price a consumer is willing to pay for a product or service.
English Auction
A method of sale involving ascending bids, where participants bid openly against one another, and the item is sold to the highest bidder.
Willingness To Pay
The maximum amount an individual is prepared to spend on a good or service.
- Absorb the foundational principle and operational dynamics of English auctions.
- Explore the anticipated financial outcomes from auctions with distinct base prices.
- Learn about the influence of reservation prices on the effectiveness of auctions.
Verified Answer
DP
Learning Objectives
- Absorb the foundational principle and operational dynamics of English auctions.
- Explore the anticipated financial outcomes from auctions with distinct base prices.
- Learn about the influence of reservation prices on the effectiveness of auctions.