Answered step by step
Verified Expert Solution
Question
1 Approved Answer
17.3 (2) We revisit our nancially aiicted friend, Charlie Plopp. This time we will look at a slightly generalized version of the same problem. All
17.3 (2) We revisit our nancially aiicted friend, Charlie Plopp. This time we will look at a slightly generalized version of the same problem. All else is as before, but the willingness to pay of recreational bulldozers is an amount 0 C. 35, 000 which is known to Charlie. In the previous problem we dealt with the special case where C = $4, 500. Now we want to explore the way in which the sales method that gives Charlie the highest expected revenue depends on the size of C. {a} What will Charlie's expected revenue be if he posts a price equal to the reservation price of professional bulldozer operators? $(3/4) X $6,000 + (1/4) x $1,000 = $4, 750. (I?) If Charlie posts a price equal to the reservation price C of recreational bulldozer operators, what is his expected revenue? $0 . (a) If Charlie sells his bulldozer by method 3, the secondprice sealedbid auction, what is his expected revenue? (The answer is a. function of C.) $(1/4) X $0, 000 + (3/4) X $0 = $1,500 + (3/4)C'. {d} Show that selling by method 3 will give Charlie a. higher expected pay off than selling by method 2 if C 0 whenever C $(3/4)6, 000 + (1/4)1,000 = 4,759. (:f) For what values of C is Charlie better oE selling by method 1 than by method 3? This happens when 4,750 > 1,500+i, 40 which is the case whenever C
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started