Multiple Choices 1. An antique cabinet is being sold by means of an English auct
ID: 1248043 • Letter: M
Question
Multiple Choices
1. An antique cabinet is being sold by means of an English auction. There are four bidders, Holly, Penelope, Minnie, and Sheila. These bidders are unacquainted with each other and do not collude. Holly values the cabinet at $1,600, Penelope values it at $1,350, Minnie values it at $2,100, and Sheila values it at $1,100. If the bidders bid in their rational self-interest, the cabinet will be sold to
a. Holly for about $1,600.
b. Minnie for about $2,100.
c. either Minnie or Holly for slightly more than $1,600. Which of them actually gets it is randomly determined.
d. Minnie for slightly more than $1,600.
e. None of the above.
2. A seller decides to sell an object by means of an English auction without a reservation price. There are two bidders. The seller believes that for each of the two bidders there is a probability of 1/2 that the bidder’s value for the object is $400 and a probability of 1/2 that the bidder’s value is $100. The seller believes that these probabilities are independent between bidders. If the bidders bid rationally, what is the seller’s expected revenue from the auction?
a. $175
b. $220
c. $400
d. $250
e. $100
3. In which of the following auctions, one should not shade the bid?
a. Private value English Auction
b. Private value Dutch Auction
c. Private value sealed bid first price auction
d. Common value sealed bid first price auction with uncertainty about the value
Explanation / Answer
Multiple Choices
1. An antique cabinet is being sold by means of an English auction. There are four bidders, Holly, Penelope, Minnie, and Sheila. These bidders are unacquainted with each other and do not collude. Holly values the cabinet at $1,600, Penelope values it at $1,350, Minnie values it at $2,100, and Sheila values it at $1,100. If the bidders bid in their rational self-interest, the cabinet will be sold to
b. Minnie for about $2,100.
English auction is an open outcry auction, here the highest bidder will win
2. A seller decides to sell an object by means of an English auction without a reservation price. There are two bidders. The seller believes that for each of the two bidders there is a probability of 1/2 that the bidder’s value for the object is $400 and a probability of 1/2 that the bidder’s value is $100. The seller believes that these probabilities are independent between bidders. If the bidders bid rationally, what is the seller’s expected revenue from the auction?
d. $250
For A: P(x)= 0.5, x1 = 400: Probably of A= P(X)x X= 200
For B: P(x2)= 0.5, x2 = 100:Probably of B= P(X)x X= 50
Summation= x p(x)
= 200+ 50
=250
3. In which of the following auctions, one should not shade the bid?
a. Private value English Auction
English auction, is the one in which there are many bidders and its an open out cry, so the chances of bid shading is the lowest in this, because the bidders cannot reach a nash equillibrium..
Remaining three options bid shading is as common practice.
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