The Winner's Curse Refers To

question 16

Multiple Choice

The winner's curse refers to:

• A)bidding an amount higher than your maximum willingness to pay in an effort to 'win' in a private values auction.
• B)winning a private values auction and later determining that you bid more than you had really intended to.
• C)winning a common values auction and bidding more than the object is worth.
• D)winning an item in a common values auction that you don't really want.

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Definitions:

Differential Cost

The difference in cost between two alternative decisions, or a change in cost from one period to the next.

Incremental Cost

The additional cost that a company incurs when producing one more unit of a product.

Incremental Costs

Costs that change as a result of a decision to increase or decrease the level of an activity or operation.

Sunk Costs

Costs that have already been incurred and cannot be recovered or altered by future actions, and therefore should not influence current or future business decisions.