Question
Ron Swanson, the owner of Very Good Building and Development, built a very good table, which cost him $400 to build. He is selling his
Ron Swanson, the owner of Very Good Building and Development, built a very good table, which cost him $400 to build. He is selling his table at the Indiana Fine Woodworking Association Convention. Suppose that his table appeals strongly to 40 percent (willing to pay $1,000) and moderately to 60 percent (willing to pay $600) of the members of the association at the convention. Unfortunately, due to the many other alternative pieces of furniture for sale, only two potential buyers approach him all night. Note that in this case, there are only four possibilities, either they are both strong appeal, both moderate appeal, or one is strong and the other is moderate (or vice versa). Ron doesn't know which type they are for sure, just the information mentioned previously about the proportion of the members that are strong and moderate appeal at the convention.
a)If he sells his very good table at a single posted price, a price of $1,000 / $600 (circle one) would result in a maximized expected profit of ________ . (1 point)
b)What would be his expected profit if instead, he sells his table using a second-price auction? (1 point)
c)If more people were to enter the auction, would his expected profit go up or down? Why? (1 point)
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