1. Bob and Tom are graduating and are no longer going to be roommates, but they
ID: 3198462 • Letter: 1
Question
1.
Bob and Tom are graduating and are no longer going to be roommates, but they both want to keep the dog they adopted.
Using the Method of Sealed Bids, Bob bids $317 and Tom bids $503 for the dog.
Since Tom's bid is higher, he gets the dog.
How much will he have to pay Bob in order to keep the division fair?
2. Sonny and Cher splitting up, but they both want to keep the tour bus.
Using the Method of Sealed Bids, Sonny says the bus is worth $78,000 and Cher bids $55,000 for it.
Since Sonny's bid is higher, he gets the bus. How much will he have to pay Cher in order to keep the division fair?
Explanation / Answer
For two bidders, Bob's fair share is half of $317,viz. $158.50 and Tom's fair share is $251.50
The bid is won by Tom. For a fair share of $251.50, he got the house worth $503, so he pays $251.50 to the "kitty"
Bob's fair share is $158.50 and he got nothing, so he receives $158.50 from the kitty.
Division of the Surplus - Tom paid $251.50 and Bob received $158.50, leaving $93, which must be now equally divided. So each shall receive $46.50. Hence, the final settlement is
Tom receives the dog (worth $503) and pays $205, for a net value of $298
Bob receives $205 in cash. This is the fair division amount paid by Tom.
The second problem is exactly the same in which exactly same process needs to be followed, with different numbers. The final answer you should get is that Sonny pays $33,750 to Cher.
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