Question
1. A seller decides to sell an object by means of a sealed-bid second-price auction without a reservation price. There are two bidders. The
1. A seller decides to sell an object by means of a sealed-bid second-price 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 $600 and a probability of 1/2 that the bidder's value is $200. 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? Please calculate and explain in detail. (5 points) 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 $500 and a probability of 1/2 that the bidder's value is $200. 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? Assume bids must be raised by at least $10. Please calculate and explain in detail. (5 points)
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