PLEASE DONT SPAM! ANY HELP WILL BE GREATLY APPRECIATED! The city of Pittsburgh w

Question

PLEASE DONT SPAM! ANY HELP WILL BE GREATLY APPRECIATED!

The city of Pittsburgh wants to tear down and to rebuild a bridge. Construction firms will compete for the bridge contract in an auction. Firms submit sealed bids, and the town will award the contract to the firm that submits the lowest bid, and the winning firm will receive as payment the amount of the second lowest bid. For example, if firm A bids $8 million, firm B bids $9 million, and firm C bids $10 million, then firm A wins and is paid $9 million. You are a consultant for one of the construction firms, and they have told you that the minimum payment for the construction work that the firm is willing to accept is $9 million. Explain to the CEO why bidding $9 million dominates bidding $7 million. Explain to the CEO why bidding $9 million dominates bidding $11 million.

Explanation / Answer

A) iF THE FIRM bids $7 million then it can win the auction however it would be paid second highest bid which may or may not be over $9 million.In this case,the firm might be unable to cover the minimum expenditures and might incurr a loss

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b) If the firm on the other hand bids $10 million then its bid would be too high and it would not win the auction.Bidding $9 million would ensure that the firm would recieve something over $9 million and won't lose out the auction.

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