Question 1

In recent years,auction sites,such as ebay,have flooded the Internet.Sellers expect to gain by using the Internet for conducting auctions because:

Accepted Answer

A)  more bidders means that price discrimination is an option. 
B)  with more bidders, each submits a bid closer to his or her reservation price to increase the probability of a win. 
C)  with more bidders, sellers expect to realize greater profits. 
D)  consumer surplus will increase. 
E)  b and c 
A)  more bidders means that price discrimination is an option. 
B)  with more bidders, each submits a bid closer to his or her reservation price to increase the probability of a win. 
C)  with more bidders, sellers expect to realize greater profits. 
D)  consumer surplus will increase. 
E)  b and c E

Question 2

The following table describes the reservation prices and four bids for an auction of three tickets to the recent Madonna concert.  
The total consumer surplus that results from this auction is:

Accepted Answer

A)  $0. 
B)  $99. 
C)  $297. 
D)  $100. 
E)  none of the above. 
A)  $0. 
B)  $99. 
C)  $297. 
D)  $100. 
E)  none of the above. C

Question 3

Herodotus,the Greek historian,wrote that ancient Babylonians engaged in auctions in which men purchased:

Accepted Answer

A)  cattle. 
B)  horses. 
C)  grains of various sorts. 
D)  wives. 
E)  precious jewels. 
A)  cattle. 
B)  horses. 
C)  grains of various sorts. 
D)  wives. 
E)  precious jewels. D

Question 4

Relative to the posted-price selling mechanism,an auction market will provide:

Accepted Answer

A)  more surplus to the market. 
B)  more consumer surplus and less producer surplus to the market. 
C)  more producer surplus and less consumer surplus to the market. 
D)  less surplus to the market. 
E)  no change in the allocation of consumer and producer surplus to the market. 
A)  more surplus to the market. 
B)  more consumer surplus and less producer surplus to the market. 
C)  more producer surplus and less consumer surplus to the market. 
D)  less surplus to the market. 
E)  no change in the allocation of consumer and producer surplus to the market.

Question 5

Regardless of the rules of an auction,the winner will pay:

Accepted Answer

A)  his or her reservation price for the good at auction. 
B)  the true value of the good at auction. 
C)  the expected value of the good at auction. 
D)  the maximum amount that he or she is willing to pay for the good at auction. 
E)  the reservation price of the second highest bidder for the good at auction. 
A)  his or her reservation price for the good at auction. 
B)  the true value of the good at auction. 
C)  the expected value of the good at auction. 
D)  the maximum amount that he or she is willing to pay for the good at auction. 
E)  the reservation price of the second highest bidder for the good at auction.

Question 6

Eddie is auctioning a Willie Mays baseball card.If the expected profit from the auction is $10,000 and the probability of a win is 10%,the surplus to be split between buyer and seller is:

Accepted Answer

A)  $0. 
B)  $1,000. 
C)  $10,000. 
D)  $100,000. 
E)  none of the above. 
A)  $0. 
B)  $1,000. 
C)  $10,000. 
D)  $100,000. 
E)  none of the above.

Question 7

The winner's curse occurs because:

Accepted Answer

A)  competitors in auctions often make poor bids. 
B)  there are too many competitors in most auctions. 
C)  competitors in auctions usually make bids that are below the expected value of the prize. 
D)  sealed-bid auctions have too much uncertainty attached to them. 
E)  the winning competitor in an auction will make a bid that is greater than the average bid. 
A)  competitors in auctions often make poor bids. 
B)  there are too many competitors in most auctions. 
C)  competitors in auctions usually make bids that are below the expected value of the prize. 
D)  sealed-bid auctions have too much uncertainty attached to them. 
E)  the winning competitor in an auction will make a bid that is greater than the average bid.

Question 8

What is the optimal strategy in a second-price,sealed-bid auction?

Accepted Answer

A)  Bid an amount that is equal to your reservation price. 
B)  Bid an amount that is greater than your reservation price because you will be paying the second-highest bid if you win. 
C)  Bid an amount that is less than your reservation price. 
D)  Bid an amount that is less than your reservation price, depending on the number of bidders. 
E)  If there are fewer than five bidders, bid below your reservation price. Otherwise, bid your reservation price. 
A)  Bid an amount that is equal to your reservation price. 
B)  Bid an amount that is greater than your reservation price because you will be paying the second-highest bid if you win. 
C)  Bid an amount that is less than your reservation price. 
D)  Bid an amount that is less than your reservation price, depending on the number of bidders. 
E)  If there are fewer than five bidders, bid below your reservation price. Otherwise, bid your reservation price.

Question 9

The following table describes the reservation prices and four bids for an auction of three tickets to the recent Madonna concert.  
If the marginal cost of providing a seat for one more Madonna fan is $0,the total producer surplus that results from this auction is:

Accepted Answer

A)  $0. 
B)  $297. 
C)  $1,803. 
D)  $2,100. 
E)  none of the above. 
A)  $0. 
B)  $297. 
C)  $1,803. 
D)  $2,100. 
E)  none of the above.

Question 10

What is the optimal bid for a descending-price auction if the bidder's reservation price is 8,the lowest possible bid is 3,and there are five bidders?

Accepted Answer

A)  3. 
B)  6. 
C)  7. 
D)  8. 
E)  None of the above. 
A)  3. 
B)  6. 
C)  7. 
D)  8. 
E)  None of the above.

Question 11

Second-price,sealed-bid auctions have rules that are incentive-compatible because:

Accepted Answer

A)  they encourage buyers and sellers to maximize profits. 
B)  they encourage buyers and sellers to collude to fix the results of the auction. 
C)  they encourage individuals to reveal their true preferences. 
D)  individual bidders are encouraged to work with rivals to submit bids that maximize joint profits. 
E)  each buyer is encouraged to submit the same bid. 
A)  they encourage buyers and sellers to maximize profits. 
B)  they encourage buyers and sellers to collude to fix the results of the auction. 
C)  they encourage individuals to reveal their true preferences. 
D)  individual bidders are encouraged to work with rivals to submit bids that maximize joint profits. 
E)  each buyer is encouraged to submit the same bid.

Question 12

In an English auction:

Accepted Answer

A)  buyers bid against each other with a succession of increasingly higher prices until only one remains. 
B)  a bid is announced, and if no buyer accepts the bid in a given period of time, a new, slightly lower, bid is announced; this procedure continues until a bidder accepts the announced price. 
C)  each bidder submits a price that is known only to that bidder; bids are opened and the highest (lowest) bid is accepted. 
D)  each bidder submits a price that is known only to that bidder; bids are opened and the highest (lowest) bidder wins, but the transaction occurs at the second highest (lowest) price. 
E)  none of the above. 
A)  buyers bid against each other with a succession of increasingly higher prices until only one remains. 
B)  a bid is announced, and if no buyer accepts the bid in a given period of time, a new, slightly lower, bid is announced; this procedure continues until a bidder accepts the announced price. 
C)  each bidder submits a price that is known only to that bidder; bids are opened and the highest (lowest) bid is accepted. 
D)  each bidder submits a price that is known only to that bidder; bids are opened and the highest (lowest) bidder wins, but the transaction occurs at the second highest (lowest) price. 
E)  none of the above.

Question 13

Which of the following is the dominant strategy when bidding in an auction?

Accepted Answer

A)  Bid less than your reservation price to earn a larger surplus. 
B)  Bid more than your reservation price if you really want to win the auction. 
C)  Never bid your reservation price, because you will realize no surplus if you win the auction. 
D)  Always bid up to, but not above, your reservation price. 
E)  The dominant strategy depends on the type of auction. 
A)  Bid less than your reservation price to earn a larger surplus. 
B)  Bid more than your reservation price if you really want to win the auction. 
C)  Never bid your reservation price, because you will realize no surplus if you win the auction. 
D)  Always bid up to, but not above, your reservation price. 
E)  The dominant strategy depends on the type of auction.

Question 14

Which of the following is an example of a descending-bid auction?

Accepted Answer

A)  Sealed-bid auction. 
B)  Japanese auction. 
C)  Dutch auction. 
D)  Vickrey auction. 
E)  Rabbit auction. 
A)  Sealed-bid auction. 
B)  Japanese auction. 
C)  Dutch auction. 
D)  Vickrey auction. 
E)  Rabbit auction.

Question 15

As far as we know,auctions first emerged:

Accepted Answer

A)  as e-commerce exploded in recent years. 
B)  when capitalism became a popular form of economic organization. 
C)  after the emergence of communism, because black markets were popular in centrally planned economies. 
D)  in Babylonian marriage markets. 
E)  to increase efficiency in the trading of commodities. 
A)  as e-commerce exploded in recent years. 
B)  when capitalism became a popular form of economic organization. 
C)  after the emergence of communism, because black markets were popular in centrally planned economies. 
D)  in Babylonian marriage markets. 
E)  to increase efficiency in the trading of commodities.

Question 16

The winner's curse says that:

Accepted Answer

A)  the highest bidder in a competitive auction is likely to realize negative profits. 
B)  the winner of any lottery is likely to realize negative profits. 
C)  successful firms often lose their intensity over time. 
D)  to stay first in its industry, a leader must innovate constantly. 
E)  firms should strive to be second best. 
A)  the highest bidder in a competitive auction is likely to realize negative profits. 
B)  the winner of any lottery is likely to realize negative profits. 
C)  successful firms often lose their intensity over time. 
D)  to stay first in its industry, a leader must innovate constantly. 
E)  firms should strive to be second best.

Question 17

When significant uncertainty exists surrounding the true value of an object at auction,buyers contemplating a bid should bid less when:

Accepted Answer

A)  they have less information about the true value of the item. 
B)  they are less confident in their own estimates of the true value of the object. 
C)  there are many other buyers bidding against them. 
D)  all of the above. 
E)  none of the above. 
A)  they have less information about the true value of the item. 
B)  they are less confident in their own estimates of the true value of the object. 
C)  there are many other buyers bidding against them. 
D)  all of the above. 
E)  none of the above.

Question 18

If bidders are likely to be risk-averse:

Accepted Answer

A)  sellers should use a first-price auction. 
B)  sellers should use a second-price auction. 
C)  auctions will not provide surplus for sellers. 
D)  sellers should use a posted-price strategy. 
E)  Dutch auction rules will yield the greatest profit to sellers. 
A)  sellers should use a first-price auction. 
B)  sellers should use a second-price auction. 
C)  auctions will not provide surplus for sellers. 
D)  sellers should use a posted-price strategy. 
E)  Dutch auction rules will yield the greatest profit to sellers.

Question 19

In an English auction:

Accepted Answer

A)  the dominant strategy is to bid up to your reservation price. 
B)  the dominant strategy is to bid beyond your reservation price. 
C)  there is no dominant strategy. 
D)  the dominant strategy is to bid up to half of your reservation price. 
E)  the dominant strategy is to maximize expected utility. 
A)  the dominant strategy is to bid up to your reservation price. 
B)  the dominant strategy is to bid beyond your reservation price. 
C)  there is no dominant strategy. 
D)  the dominant strategy is to bid up to half of your reservation price. 
E)  the dominant strategy is to maximize expected utility.

Question 20

In a sealed-bid auction:

Accepted Answer

A)  buyers bid against each other with a succession of increasingly higher prices until only one remains. 
B)  a bid is announced, and if no buyer accepts the bid in a given period of time, a new, slightly lower, bid is announced; this procedure continues until a bidder accepts the announced price. 
C)  each bidder submits a price that is known only to that bidder; bids are opened and the highest (lowest) bid is accepted. 
D)  each bidder submits a price that is known only to that bidder; bids are opened and the highest (lowest) bidder wins, but the transaction occurs at the second highest (lowest) price. 
E)  none of the above. 
A)  buyers bid against each other with a succession of increasingly higher prices until only one remains. 
B)  a bid is announced, and if no buyer accepts the bid in a given period of time, a new, slightly lower, bid is announced; this procedure continues until a bidder accepts the announced price. 
C)  each bidder submits a price that is known only to that bidder; bids are opened and the highest (lowest) bid is accepted. 
D)  each bidder submits a price that is known only to that bidder; bids are opened and the highest (lowest) bidder wins, but the transaction occurs at the second highest (lowest) price. 
E)  none of the above.

In recent years,auction sites,such as ebay,have flooded the Internet.Sellers expect to gain by using the Internet for conducting auctions because:

The following table describes the reservation prices and four bids for an auction of three tickets to the recent Madonna concert. The total consumer surplus that results from this auction is:

Herodotus,the Greek historian,wrote that ancient Babylonians engaged in auctions in which men purchased:

Relative to the posted-price selling mechanism,an auction market will provide:

Regardless of the rules of an auction,the winner will pay:

Eddie is auctioning a Willie Mays baseball card.If the expected profit from the auction is $10,000 and the probability of a win is 10%,the surplus to be split between buyer and seller is:

The winner's curse occurs because:

What is the optimal strategy in a second-price,sealed-bid auction?

The following table describes the reservation prices and four bids for an auction of three tickets to the recent Madonna concert. If the marginal cost of providing a seat for one more Madonna fan is $0,the total producer surplus that results from this auction is:

What is the optimal bid for a descending-price auction if the bidder's reservation price is 8,the lowest possible bid is 3,and there are five bidders?

Second-price,sealed-bid auctions have rules that are incentive-compatible because:

In an English auction:

Which of the following is the dominant strategy when bidding in an auction?

Which of the following is an example of a descending-bid auction?

As far as we know,auctions first emerged:

The winner's curse says that:

When significant uncertainty exists surrounding the true value of an object at auction,buyers contemplating a bid should bid less when:

If bidders are likely to be risk-averse:

In an English auction:

In a sealed-bid auction:

Introduction

Demand Theory

Consumer Behavior and Rational Choice

Estimating Demand Functions

Production Theory

The Analysis of Costs

Perfect Competition

Monopoly and Monopolistic Competition

Managerial Use of Price Discrimination

Bundling and Intrafirm Pricing

Oligopoly

Game Theory

Risk Analysis

Principalagent Issues and Managerial Compensation

Adverse Selection

Government and Business

Optimization Techniques

Appendix Problems

Filters

Exam 13: Auctions

In recent years,auction sites,such as ebay,have flooded the Internet.Sellers expect to gain by using the Internet for conducting auctions because:

The following table describes the reservation prices and four bids for an auction of three tickets to the recent Madonna concert. The total consumer surplus that results from this auction is:

Herodotus,the Greek historian,wrote that ancient Babylonians engaged in auctions in which men purchased:

Relative to the posted-price selling mechanism,an auction market will provide:

Regardless of the rules of an auction,the winner will pay:

Eddie is auctioning a Willie Mays baseball card.If the expected profit from the auction is $10,000 and the probability of a win is 10%,the surplus to be split between buyer and seller is:

The winner's curse occurs because:

What is the optimal strategy in a second-price,sealed-bid auction?

The following table describes the reservation prices and four bids for an auction of three tickets to the recent Madonna concert. If the marginal cost of providing a seat for one more Madonna fan is $0,the total producer surplus that results from this auction is:

What is the optimal bid for a descending-price auction if the bidder's reservation price is 8,the lowest possible bid is 3,and there are five bidders?

Second-price,sealed-bid auctions have rules that are incentive-compatible because:

In an English auction:

Which of the following is the dominant strategy when bidding in an auction?

Which of the following is an example of a descending-bid auction?

As far as we know,auctions first emerged:

The winner's curse says that:

When significant uncertainty exists surrounding the true value of an object at auction,buyers contemplating a bid should bid less when:

If bidders are likely to be risk-averse:

In an English auction:

In a sealed-bid auction:

Introduction

Demand Theory

Consumer Behavior and Rational Choice

Estimating Demand Functions

Production Theory

The Analysis of Costs

Perfect Competition

Monopoly and Monopolistic Competition

Managerial Use of Price Discrimination

Bundling and Intrafirm Pricing

Oligopoly

Game Theory

Risk Analysis

Principalagent Issues and Managerial Compensation

Adverse Selection

Government and Business

Optimization Techniques

Appendix Problems

Filters