First Fiddler's Bank Has Foreclosed on a Home Mortgage and Is

question 4

Multiple Choice

First Fiddler's Bank has foreclosed on a home mortgage and is selling the house at auction. There are three bidders for the house, Jesse, Shelia, and Elsie. First Fiddler's does not know the willingness to pay of any of these bidders but on the basis of its previous experience believes that each of them has a probability of of valuing the house at $900,000, a probability of of valuing it at $700,000, and a probability of of valuing it at $200,000. First Fiddler's believes that these probabilities are independent between buyers. If First Fiddler's sells the house by means of a second-bidder, sealed-bid auction (Vickrey auction) , what will be the bank's expected revenue from the sale? (Choose the closest answer.)

• A) $700,000
• B) $800,000
• C) $450,000
• D) $600,000
• E) $533,333.33

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