Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose we are interested in bidding on a piece of land and we know one other bidder is interested. The seller announced that the highest

Suppose we are interested in bidding on a piece of land and we know one other bidder is interested. The seller announced that the highest bid in excess of $10,000 will be accepted. Assume that the competitor's bid x is a random variable that is uniformly distributed between $10,000 and $15,000.

(a)Suppose you bid $12,000. What is the probability that your bid will be accepted?

(b)Suppose you bid $14,000. What is the probability that your bid will be accepted?

(c) What amount should you bid in dollars to maximize the probability that you get the property?

$ _________-

(d)Suppose you know someone who is willing to pay you $16,000 for the property.

What is the expected profit in dollars if you bid the amount given in part (c)?

$ _________

Find a bid in dollars which produces a greater expected profit than bidding the amount given in part (c). (If an answer does not exist, enter DNE.)

$ __________

Would you consider bidding less than the amount in part (c)? Why or why not?

Yes. There is a bid which gives a greater expected profit than the bid given in part (c), and thus a higher expected profit is possible with a bid smaller than the amount in part (c).

No. The bid which maximizes the expected profit is the amount given in part (c), thus it does not make sense to place a smaller bid.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Business Economics Methods And Techniques

Authors: Chandra Kant Singh

1st Edition

9353147018, 9789353147013

More Books

Students also viewed these Economics questions

Question

Date decision to be made (if known)

Answered: 1 week ago

Question

Explain the importance of Human Resource Management

Answered: 1 week ago

Question

Discuss the scope of Human Resource Management

Answered: 1 week ago

Question

Discuss the different types of leadership

Answered: 1 week ago

Question

Write a note on Organisation manuals

Answered: 1 week ago