You are bidding in a second-price auction for a painting that you value at $800. You estimate that other bidders are most likely to value the painting at between $200 and $600. Which of these is likely to be your best bid? ‍$1,000 ‍$800 ‍$600 ‍$400

You are bidding in a second-price auction for a painting that you value at $800. You estimate that other bidders are most likely to value the painting at between $200 and $600. Which of these is likely to be your best bid? ‍$1,000 ‍$800 ‍$600 ‍$400

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter18: Auctions

Section: Chapter Questions

Problem 1MC

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Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of the extrusion machine. The company could keep it in inventory for a possible future product and estimates that the reservation value is $350,000. Your dealings on the secondhand market lead you to believe that if you commit to a price of $400,000, there is a 0.5 chance you will be able to sell the machine. If you commit to a price of $450,000, there is a 0.2 chance you will be able to sell the machine. If you commit to a price of $500,000, there is a 0.15 chance you will be able to sell the machine. These probabilities are summarized in the following table. For each posted price, enter the expected value of attempting to sell the machine at that price. (Hint: Be sure to take into account the value of the machine to your company in the event that you are not be able to sell the machine.) Posted Price Probability of Sale Expected Value ($) ($) $500,000…
Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of the extrusion machine. The company could keep it in inventory for a possible future product and estimates that the reservation value is $350,000. Your dealings on the secondhand market lead you to believe that if you commit to a price of $400,000, there is a 0.4 chance you will be able to sell the machine. If you commit to a price of $450,000, there is a 0.25 chance you will be able to sell the machine. If you commit to a price of $500,000, there is a 0.1 chance you will be able to sell the machine. These probabilities are summarized in the following table. For each posted price, enter the expected value of attempting to sell the machine at that price. (Hint: Be sure to take into account the value of the machine to your company in the event that you are not be able to sell the machine.) Posted Price ($) $500,000 $450,000 $400,000 Probability of Sale оо $500,000 0.1 $450,000…
Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of the extrusion machine. The company could keep it in inventory for a possible future product and estimates that the reservation value is $200,000. Your dealings on the secondhand market lead you to believe that if you commit to a price of $300,000, there is a 0.5 chance you will be able to sell the machine. If you commit to a price of $400,000, there is a 0.2 chance you will be able to sell the machine. If you commit to a price of $500,000, there is a 0.1 chance you will be able to sell the machine. These probabilities are summarized in the following table. For each posted price, enter the expected value of attempting to sell the machine at that price. (Hint: Be sure to take into account the value of the machine to your company in the event that you are not be able to sell the machine.) Posted Price Expected Value ($) Probability of Sale ($) $500,000 0.1 $ $400,000 0.2 $…
In early 2008, you purchased and remodeled a 120 - room hotel to handle the increased number of conventions coming to town. By mid-2008, it became apparent that the recession would kill the demand for conventions. Now, you forecast that you will be able to sell only 10,000 room - nights, which cost $80 per room per night to service. You spent $20.00 million on the hotel in 2008, and your cost of capital is 25%. The current going price to sell the hotel is $15 million. If the estimated demand is 10,000 room - nights, the break - even price is $ per room, per night. (Hint: Remember that the cost of capital is the opportunity cost, or true cost, of making an investment.)
Your company has invested $5 million in developing a new product, but the development process isn’t quite complete. You have just learned from your marketing team that other companies have introduced similar products. As a result of this competition, the expected sales of your new product once you have completed development and actually begun production is now just $3 million. Your production team tells you that it will cost another $1 million to finish development and make your product. The decision is now yours: should you give the go-ahead to complete development of the product? Why or why not? In the event that your production team’s cost estimate is inaccurate, what is the most that your company should pay to complete development? Why? Be sure to incorporate (and define) the relevant concept into your answer.
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After graduating, you start work as a management consultant. You are paid $210 per hour. One morning before work, you decide to buy a new car. You know the exact model you want, and you know that in your area the price ranges from $39,000 to $41,000, with the average price you can expect to pay being $40,000. You can choose among hundreds of dealers, but you don't know which dealer will give you the best price. Time is literally money, since every hour you spend searching is an hour you don't get paid. Each visit to a dealer takes an hour. Your expected marginal benefit of another search is the difference between the current dealer's offer and the average price. The first dealer you go to asks $40,500 for the car. Should you accept the price or keep searching? (Keep in mind that each visit to a dealer takes an hour.) Keep searching. Accept the price. Suppose you kept searching, and the next dealer you go to asks $40,150. Do you think you should accept this price or keep searching? O…
Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of the extrusion machine. The company could keep it in inventory for a possible future product and estimates that the reservation value is $350,000. Your dealings on the secondhandmarket lead you to believe that if you commit to a price of $400,000, there is a 0.4 chance you will be able to sell the machine. If you commit to a price of $450,000, there is a 0.25 chance you will be able to sell the machine. If you commit to a price of $500,000, there is a 0.1 chance you will be able to sell the machine. These probabilities are summarized in the following table. For each posted price, enter the expected value of attempting to sell the machine at that price. (Hint: Be sure to take into account the value of the machine to your company in the event that you are not be able to sell the machine.)
You see an advertisement for a used car. The owner has not set a price but asks for people to make him an offer. You inspect the car and believe that the true value is equally likely to be anywhere in the range of $1,000 to $9,000 (so your calculation of the average of this value is $5,000). The current owner knows the exact true value, and he will for sure accept your offer if it is higher than the true value (but not if it is lower than that value). If your offer is accepted and you get the car, then you will find out the true value. But you know in advance that your amazing car repair skills can increase the value of the car by 25% of whatever its true value is. What is your expected profit if you offer $5,000? Round your answer to the nearest dollar (e.g. 500). If you expect to make a loss, add a minus sign (e.g. -500, please do not include space between minus sign and the number if the answer is negative). Note:- Do not provide handwritten solution. Maintain accuracy and quality…
Bill is considering opening a new bookstore near the university campus. There are two possible sites under consideration. One is relatively small, while the other is large. If he opens at small site and demand is good, he will generate a profit of $60,000. If demand is low, he will lose $20,000. If he opens at large site and demand is high he will generate a profit of $90,000, but he will lose $40,000 if demand is low. He also has decided that he will open at one of these sites. He believes that there is a 60 percent chance that demand will be high. He assigns the following utilities to the different profits: U(60,000) = ? U(-20,000) = 0.20 U(90,000) = 1 U(-40,000) = 0 For what value of utility for $60,000, will Bill be indifferent between the two alternatives? (Show all your work)
Potential Buyer-Related Issues with Reverse Auctions
Suppose you play a game with a spinner. You play each game by spinning the spinner once. P(red) = P(blue) = Ķ, and P(green) = . If you land on red, you pay 10 pesos. If you land on blue, you don't pay or win anything. If you land on green, you win 10 pesos. What is the expected profit of the game?