In a First-Price Sealed-Bid Auction When Bidders Have Private Values

question 56

Multiple Choice

In a first-price sealed-bid auction when bidders have private values, the best bidding strategy is to bid:

• A)your value for the object since this gives you the highest probability of winning the auction.
• B)the value of the second highest bidder since this gives you the highest probability of winning while maximizing your surplus.
• C)something less than your maximum willingness to pay, although how much less depends on a variety of factors.
• D)continuing bidding until you win if you like the object.

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Definitions:

Corporation

A legal entity recognized by law as separate from its owners, capable of holding assets, incurring liabilities, and conducting business.

FMV

Fair Market Value (FMV) refers to the price at which an asset would sell in the marketplace under conditions where both buyer and seller have reasonable knowledge of the asset and are willing to trade without external pressures.

Basis

Basis is the amount of investment in property for tax purposes, used to calculate gain or loss on a sale or other disposition of the property.

Capital Gain

Profit from the sale of property or an investment when the selling price exceeds the purchase price.