A Seller Knows That There Are Two Bidders for the Object

question 36

Multiple Choice

A seller knows that there are two bidders for the object he is selling.He believes that with probability 1/2, one has a buyer value of $5 and the other has a buyer value of $12 and, with probability 1/2, one has a buyer value of $10 and the other has a buyer value of $30.He knows that bidders will want to buy the object so long as they can get it for their buyer value or less.He sells it in an English auction with a reserve price which he must set before the auction starts.To maximize his expected profits, he should set the reserve price at

• A)$30.
• B)$5.
• C)$12.
• D)$10.
• E)$20.

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Definitions:

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An individual’s subjective evaluation of their own worth or value.

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The influence exerted by a peer group in encouraging a person to change their attitudes, values, or behaviors in order to conform to group norms.

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