The Following Graph Shows the Bid Value and Probability of Winning

question 56

Multiple Choice

The following graph shows the bid value and probability of winning an auction for an oil painting under a first-price sealed bid auction with private values. The bidder is willing to pay a maximum of £2000 for the oil painting. Refer to the graph to answer the question. The line S has a positive slope which shows that the _____.

• A) probability of winning the auction rises as the bidder increases the bid.
• B) the potential gains from winning the auction increases as the bid value increases.
• C) the private value of the bidder is influenced by the changes in the bid values.
• D) the optimal bid is equal to the bidder's maximum willingness to pay.

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Definitions:

Net Income

The amount of earnings left after all expenses, including taxes and costs, have been subtracted from total revenue.

Fixed Overhead

Fixed overhead consists of the consistent, ongoing costs not directly tied to production levels within a business, such as rent, insurance, and salaries.

Inventory

Items held by a company for sale in the ordinary course of business or to be used in producing goods and services for sale.

Absorption Costing

A methodology for product costing that comprehensively adds up the costs of direct materials, direct labor, and both fixed and variable manufacturing overheads.