Question

Scenario: John, Jacob, Alex, and Maria participate in a first-price auction for an iPod. John values the iPod at

$400, Jacob values it at $300, Alex values it at $250, and Maria values it at $200.

169)

Refer to the scenario above. If each bidder uses his or her dominant strategy, who will

win the auction?

A)

Jacob

B)

Alex

C)

Maria

D)

John

170)

Refer to the scenario above. John should submit a bid of ________.

A)

$100

B)

$300

C)

$200

D)

$400

171)

Refer to the scenario above. Jacob should submit a bid of ________.

A)

$500

B)

$300

C)

$225

D)

$400

172)

Refer to the scenario above. Alex should place a bid of ________.

A)

$250

B)

$200.50

C)

$225

D)

$187.50

173)

Refer to the scenario above. Maria should submit a bid of ________.

A)

$250

B)

$200

C)

$300

D)

$150

174)

Refer to the scenario above. The winner of this auction will earn a surplus of

________ if he or she follows his or her dominant strategy.

A)

$100

B)

$200

C)

$300

D)

$400

175)

Refer to the scenario above. The seller will earn a revenue of ________.

A)

$400

B)

$100

C)

$300

D)

$200

Answer 1

169. This is an example of first price sealed bid auction. In such an auction, each player has a choice between bidding his valuation and bidding just the amount that makes him win the auction. Here, John has the highest valuation and is the only one who can win this auction without suffering any losses. Hence, John will bid just above the next lowest valuation (300) and win the auction.

170. John will submit a bit just above 300

→ ~ 300

171. Since Jacob has information of the higher valuation of John, he would bid his valuation, 300.

172. Just like Jacob, Alex would bid his valuation, 250.

173. Maria would submit a bid of 200 for reasons mentioned in previous parts.

174. Since John's valuation is 400 and he bids $\sim 300$ , he earns a surplus of 100.

175. The seller earns a revenue of 300.