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A reserve price is a minimum price set by the auctioneer. If no bidder is willing to pay the reserve price, the item is unsold at a profit of $0 for the auctioneer. If only one bidder values the item at or above the reserve price, that bidder pays the reserve price. An auctioneer faces two bidders, each with a value of either $186 or $248, with both values equally probable. Without a reserve price, the second highest bid will be the price paid by the winning bidder. The following table lists the four possible combinations for bidder values. Each combination is equally likely to occur. On the following table, indicate the price paid by the winning bidder with and without the stated reserve price. Bidder 1 Value Bidder 2 Value Price Without Reserve ($) ($) $186 $186 $186 $248 $248 $248 $186 $248 Probability 0.25 0.25 0.25 0.25 Price with $248 Reserve Price

A reserve price is a minimum price set by the auctioneer. If no bidder is willing to pay the reserve price, the item is unsold at a profit of $0 for the auctioneer. If only one bidder values the item at or above the reserve price, that bidder pays the reserve price. An auctioneer faces two bidders, each with a value of either $186 or $248, with both values equally probable. Without a reserve price, the second highest bid will be the price paid by the winning bidder. The following table lists the four possible combinations for bidder values. Each combination is equally likely to occur. On the following table, indicate the price paid by the winning bidder with and without the stated reserve price. Bidder 1 Value Bidder 2 Value Price Without Reserve ($) ($) $186 $186 $186 $248 $248 $248 $186 $248 Probability 0.25 0.25 0.25 0.25 Price with $248 Reserve Price

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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A reserve price is a minimum price set by the auctioneer. If no bidder is willing to pay the reserve price, the item is unsold at a profit of $0 for the auctioneer. If only one bidder values the item at or above the reserve price, that bidder pays the reserve price. An auctioneer faces two bidders, each with a value of either $186 or $248, with both values equally probable. Without a reserve price, the second highest bid will be the price paid by the winning bidder.

The following table lists the four possible combinations for bidder values. Each combination is equally likely to occur. 

3. Individual Problems 18-3 A reserve price is a minimum price set by the auctioneer. If no bidder is willing to pay the reserve price, the item is unsold at a profit of $0 for the auctioneer. If only one bidder values the item at or above the reserve price, that bidder pays the reserve price. An auctioneer faces two bidders, each with a value of either $186 or $248, with both values equally probable. Without a reserve price, the second highest bid will be the price paid by the winning bidder. The following table lists the four possible combinations for bidder values. Each combination is equally likely to occur. On the following table, indicate the price paid by the winning bidder with and without the stated reserve price. Bidder 1 Value Bidder 2 Value Price Without Reserve ($) ($) ($) $186 $186 $186 $248 $248 $186 $248 $248 Probability 0.25 0.25 0.25 0.25 Without a reserve price, the expected price is $ expected price is larger, the reserve price. Price with $248 Reserve Price With a reserve price of $248, the expected price is $ . Thus, the
Transcribed Image Text:3. Individual Problems 18-3 A reserve price is a minimum price set by the auctioneer. If no bidder is willing to pay the reserve price, the item is unsold at a profit of $0 for the auctioneer. If only one bidder values the item at or above the reserve price, that bidder pays the reserve price. An auctioneer faces two bidders, each with a value of either $186 or $248, with both values equally probable. Without a reserve price, the second highest bid will be the price paid by the winning bidder. The following table lists the four possible combinations for bidder values. Each combination is equally likely to occur. On the following table, indicate the price paid by the winning bidder with and without the stated reserve price. Bidder 1 Value Bidder 2 Value Price Without Reserve ($) ($) ($) $186 $186 $186 $248 $248 $186 $248 $248 Probability 0.25 0.25 0.25 0.25 Without a reserve price, the expected price is $ expected price is larger, the reserve price. Price with $248 Reserve Price With a reserve price of $248, the expected price is $ . Thus, the
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