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

Question

Suppose we are interested in bidding on a plece of land and we know one other bidder is interested. The seler announced that the highest bid in escess of $10,200wil accepted. Assume that the competitor's bld z is a random variable that is uniformly distnibuted between $10,200 and $15,000. a. Suppose you bid $12,000. What is the probability that your bid will be accepted (to 2 decimalis) o s b, Suppose you bid $14,000, what·the probabity that your bid wil be accepted (to 2 decinals)? e. What amount should you bid to maximiae the probability that you pet the property o d. Suppose that yeu know soneone is wiling to pay you 116,000 for the property. You are considering bidding the amount shown in part (c) but a friend aggents you bu $13,100. If your objective is to maximize the expected profie, whast is your bi O What is the expected profit for this bid (to 2 decmals)? 1868.73 Check My Work V BN M

Explanation / Answer

if you bid for 13100 , and someone is ready to pay ypu 16000

then the profit will be = 16000-13100 = 2900

Probability of wining the bid at 13100 is (13100-10200) / (15000-10200) = 0.6444

Thus expected Profit = 0.64042* 2900 = 1752.08

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