Question

CPT Inc. is a local manufacturer of conveyor systems. Last year, CPT sold over $2 million worth of conveyor systems that netted the company $100,000 in profits. Raw materials and labor are CPT’s biggest expenses. Spending on structural steel alone amounted to over $500,000, or 25 percent of total sales. In an effort to reduce costs, CPT now uses an online procurement procedure that is best described as a first-price, sealed-bid auction. The bidders in these auctions utilize the steel for a wide variety of purposes, ranging from art to skyscrapers. This suggests that bidders value the steel independently, although it is perceived that bidder valuations are evenly distributed between $5,000 and $29,000.

You are the purchasing manager at CPT and are bidding on three tons of six-inch hot-rolled channel steel against 4 other bidders. Your company values the three tons of channel steel at $20,000. What is your optimal bid?

Instruction: Enter your response rounded to the nearest penny (two decimal places).

Answer 1

As there are 4 other bidders, the value of n will be 5. The lowermost likely estimation is L= 5000, and one’s own valuation is V= 20,000.

Thus, the optimal bid can be computed as shown below:

V-L 2g900 -5000 20, 000 24000-3,000 17,000