ECONOMICS

Q. Search th A reserve price is a minimum price set by the auctioneer. If no bidder is willing to pay the reserve price, the item is unsold at a profit of $0 for the auctioneer. If only one bidder values the item at or above the reserve price, that bidder pays the reserve price. An auctioneer faces two bidders, each winning bidder. with a value of either $210 or $280, with both values equally probable. Without a reserve price, the second highest bid will be the price paid by the The following table lists the four possible combinations for bidder values. Each combination is equally likely to occur. On the following table, indicate the price paid by the winning bidder with and without the stated reserve price. Bidder 1 Value Bidder 2 Value Price Without Reserve Probability Price with $280 Reserve Price $210 $210 0.25 $210 $280 0.25 $280 5210 0.25 $280 $280 0.25 With a reserve price of $280, the expected price is S . Thus, the Without a reserve price, the expected price is |S expected price is larger the reserve price