1. Suppose you have ve people bidding on a TV. The rst one is willing to pay up
ID: 3144927 • Letter: 1
Question
1. Suppose you have ve people bidding on a TV. The rst one is willing to pay up to $20, the
second one up to $35, the third up to $75, the fourth up to $80, and the fth one up to $100.
If each bidder continues to bid up to their maximum price or until the item is sold, how much
does the TV go for? How much does the seller collect?
2. Suppose now that you (the seller) know the number of bidders and the winning bid, but
don't know the maximum each bidder is willing to pay. If there are three people bidding,
what is the minimum you will make on the auction? What is the maximum? What is the
minimum/maximum if there are 5 people? What happens as the number of bidders increases?
(You might consider writing a formula for the minimum and maximum for n bidders. This
will require dening some variables!)
3. In your answer above, you probably noticed that the maximum amount the seller earns from
the sale increases quite a bit when there are more bidders. However, the minimum amount
the seller earns does not increase very much with more bidders. As a seller, under what
conditions would you earn very little from the auction? Under what conditions would you
make a good prot? Would you choose to sell an item using Committed Bids?
4. Identify some item you would be willing to buy. Give a fair market value for that item. (Note
that you must justify this price using some real world information.) As a bidder, how much
would you be willing to pay for this item under a Committed Bids system? What other
factors would you consider when deciding whether to participate or not?
Explanation / Answer
Ans(1):
1st one is willing to pay up to $20
2nd one is willing to pay up to $35
2nd one has more capacity than 1st one so when 2nd one bids more than $20 then 1st one is OUT.
3rd one is willing to pay up to $75
3rd one has more capacity than 2nd one so when 3rd one bids more than $35 then 2nd and 1st one are OUT.
4th one is willing to pay up to $80
4th one has more capacity than 3rd one so when 4th one bids more than $75 then 3rd, 2nd and 1st one are OUT.
5th one is willing to pay up to $100.
5th one has more capacity than 4th one so when 5th one bids more than $80 then 4th, 3rd, 2nd and 1st one are OUT.
Min bid more than $80 can be $81 if we cosider only integer values.
Then tv will be sold for $81
Or in general we can say that tv will be sold for at least $81 but upto $100 as maximum bid capacity is of $100
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