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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Definitions:

Deficit Trade Balance

A situation where a country's imports exceed its exports, resulting in a negative trade balance.

Free Market

An economic system where prices for goods and services are determined by the open market and by consumers, with minimal government intervention.

Chinese Yuan

The official currency of the People's Republic of China, used as the medium of exchange in mainland China.

Canadian Dollar

The official currency of Canada, symbolized as CAD and often represented by the dollar sign $.