Asked by Dorthie Brown on May 10, 2024
Verified
Anna's Antiques expects to get two bidders for the unique china teacup it sells.Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability.If Anna instead holds an oral auction between the two bidders and one bidder of each type shows up,she earn ___ from the auction.
A) Just above $100
B) $100
C) Just above $70
D) $70
High-value
Referring to products, services, or investments that are considered to be of great worth or quality in comparison to their price or cost.
Oral Auction
A public sale method where goods or services are sold to the highest bidder through verbal bids.
Low-value
Low-value refers to items, services, or transactions that are considered to have minimal worth or importance, either in terms of monetary value or significance.
- Comprehend the expected revenue implications for auctioneers under different scenarios.
Verified Answer
TA
Taryn AshleighMay 15, 2024
Final Answer :
C
Explanation :
If Anna sells the teacup to one of the bidders randomly, she can expect an average revenue of $(0.5)(100)+(0.5)(70)=$85. However, if she holds an oral auction, the bidder with the high-value of $100 will bid $100 and the bidder with the low-value of $70 will bid up to the point where the expected value of the teacup is equal to their bid (i.e. $85). Therefore, Anna can expect to earn just above $70 from the oral auction.
Learning Objectives
- Comprehend the expected revenue implications for auctioneers under different scenarios.