In a Sealed-Bid Auction, a Firm with a Reservation Price

question 3

Multiple Choice

In a sealed-bid auction, a firm with a reservation price of $480,000 submits a bid of $400,000. If its probability of winning is .75, then its expected profit from the auction is:

• A) $60,000
• B) $75,000
• C) $80,000
• D) $300,000
• E) There is not enough information to provide an answer.

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Definitions:

Cost

The value of money that has been used up to produce something or deliver a service, and hence is not available for use anymore.

Revaluation

An adjustment of the value of an asset to reflect its current market value rather than its cost value.

Useful Life

The estimated period over which an asset is expected to be usable by a company before it is fully depreciated.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting the asset's consumption or wear and tear.