A Seller Knows That There Are Two Bidders for the Object

question 19

Multiple Choice

A seller knows that there are two bidders for the object she is selling.She believes that with probability 1/2, one has a buyer value of $5 and the other has a buyer value of $10 and, with probability 1/2, one has a buyer value of $8 and the other has a buyer value of $15.She knows that bidders will want to buy the object so long as they can get it for their buyer value or less.She sells it in an English auction with a reserve price which she must set before the auction starts.To maximize her expected profits, she should set the reserve price at

• A)$5.
• B)$10.
• C)$8.
• D)$13.
• E)$15.

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