Suppose we are interested in bidding on a piece of land and we know one other bi

Question

Suppose we are interested in bidding on a piece of land and we know one other bidder is interested. The seller announced that the highest bid in excess of $9,900 will be accepted. Assume that the competitor's bid x is a random variable that is uniformly distributed between $9,900 and $15,100. a. Suppose you bid $12,000. What is the probability that your bid will be accepted (to 2 decimals)? .40 b. Suppose you bid $14,000. What is the probability that your bid will be accepted (to 2 decimals)? .78 c. What amount should you bid to maximize the probability that you get the property (in dollars)? 15100 d. Suppose that you know someone is willing to pay you $16,000 for the property. You are considering bidding the amount shown in part (c) but a friend suggests you bid $12,950. If your objective is to maximize the expected profit, what is your bid? Bid $12950 to maximize the expected profit What is the expected profit for this bid (in dollars)? 15100

Explanation / Answer

expected profit from this bid should be =transfer price that you recieve -bid price =16000-12950 =$3050

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