David wants to auction a painting, and there are two potential buyers. The value for eachbuyer is either 0 or 10, each value equally likely. Suppose he offers to sell the object for $6, and the two buyers simultaneously accept or reject. If exactly one buyer accepts, the object sold to that person for $6. If both accept, the object is allocated randomly to the buvers also for $6. If neither

David wants to auction a painting, and there are two potential buyers. The value for eachbuyer is either 0 or 10, each value equally likely. Suppose he offers to sell the object for $6, and the two buyers simultaneously accept or reject. If exactly one buyer accepts, the object sold to that person for $6. If both accept, the object is allocated randomly to the buvers also for $6. If neither

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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David wants to auction a painting, and there are
two potential buyers. The value for eachbuyer is
either O or 10, each value equally likely. Suppose
he offers to sell the object for $6, and the two
buyers simultaneously accept or reject. If exactly
one buyer accepts, the object sold to that person
for $6. If both accept, the object is allocated
randomly to the buyers, also for $6. If neither
accepts, the object is allocated randomly to the
bidders for $O.
(a) Identify the type space and strategy space for
each buyer.
(b) Show that there is an equilibrium in which
buyers with value 10 always accept.
(c) Show that there is an equilibrium in which
buyers with value 10 always reject.

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