Deck 15: Auctions

Question 1

The U.S. Government has used auctions to:

A) Award construction contracts.
B) Award mineral extraction rights on public lands.
C) Allocate radio frequencies.
D) Sell U.S. Treasury securities.
E) All of the above.

Answer 1

All of the above.

Question 2

Auctions involve:

A) Multiple bidders and multiple sellers.
B) Multiple bidders and a single seller.
C) A single bidder and multiple sellers.
D) A single bidder and a single seller.
E) Answers b and c are correct.

Answer 2

Answers b and c are correct.

Question 3

An auction involving multiple bidders buying something of value from a single seller is called:

A) Bargaining.
B) Standard auction.
C) An auction environment.
D) A coordination game.
E) None of the above.

Answer 3

Standard auction.

Question 4

An auction involving multiple bidders selling something of value to a single buyer is called:

A) A forward auction.
B) A Dutch auction.
C) A procurement auction.
D) An English auction.
E) A sealed-bid auction.

Question 5

In an open-bid auction:

A) Bids must be announced publicly.
B) Anyone may submit a bid.
C) Bidders' private valuations are common knowledge.
D) Reservation prices are never used.

Question 6

A reservation price:

A) Is the minimum price that a seller will accept in a standard auction.
B) Is the amount charged by the seller to participate in an auction.
C) Is never used in closed-bid auctions.
D) Is used when auctioning off theater tickets.

Question 7

A closed-bid auction is:

A) The same thing as a sealed-bid auction.
B) The same thing as a first-price auction.
C) One in which participation is by invitation only.
D) Only used in procurement auctions.
E) None of the above.

Question 8

In an English auction:

A) The winner submits and pays the highest sealed bid.
B) The winner submits the highest sealed bid and pays the bid submitted by the second highest bidder.
C) Prices are announced in ascending order. Bidders decide to accept or pass on the announced price. The last bidder remaining wins the auction.
D) Prices are announced in descending order. The first bidder to accept the announce price wins the auction.
E) None of the above.

Question 9

An auction involving multiple bids for blocks of identical items in which the seller accepts the lowest bid that will dispose of the entire amount placed at auction is called a:

A) Block auction.
B) Seal-bid auction.
C) Modified English auction.
D) Multiple item Dutch auction.
E) Japanese auction.

Question 10

$$\begin{array} { c c c } \hline \text { Bidder } & \text { Bid per share } & \text { Shares } \\\hline \text { A } & \$ 100 & 100,000 \\\text { B } & \$ 90 & 200,000 \\\text { C } & \$ 75 & 300,000 \\\text { D } & \$ 50 & 200,000 \\\text { E } & \$ 40 & 300,000 \\\text { F } & \$ 30 & 100,000 \\\text { G } & \$ 25 & 50,000 \\\hline\end{array}$$ TABLE 15.1

-Consider the information provided in Table 15.1, which represents bids in a multiple-item Dutch auction in which the seller wishes to dispose 1 million shares. The lowest bid per share that will dispose of the entire offering is:

A) $30
B) $40
C) $50
D) $71
E) It will take more than one bidding round to dispose of the entire offering.

Question 11

$$\begin{array} { c c c } \hline \text { Bidder } & \text { Bid per share } & \text { Shares } \\\hline \text { A } & \$ 100 & 100,000 \\\text { B } & \$ 90 & 200,000 \\\text { C } & \$ 75 & 300,000 \\\text { D } & \$ 50 & 200,000 \\\text { E } & \$ 40 & 300,000 \\\text { F } & \$ 30 & 100,000 \\\text { G } & \$ 25 & 50,000 \\\hline\end{array}$$ TABLE 15.1

-Consider the information provided in Table 15.1. If the seller disposes of the entire offering, the auction will raise:

A) $100 million.
B) $90 million.
C) $71 million.
D) $50 million.
E) $40 million.

Question 12

$$\begin{array} { c c c } \hline \text { Bidder } & \text { Bid per share } & \text { Shares } \\\hline \text { A } & \$ 100 & 100,000 \\\text { B } & \$ 90 & 200,000 \\\text { C } & \$ 75 & 300,000 \\\text { D } & \$ 50 & 200,000 \\\text { E } & \$ 40 & 300,000 \\\text { F } & \$ 30 & 100,000 \\\text { G } & \$ 25 & 50,000 \\\hline\end{array}$$ TABLE 15.1

-Consider the information provided in Table 15.1. Suppose that seller retains the right to stop the bidding at any price. If the objective of the auction is to maximize sales revenues, the offering price is:

A) $100.
B) $90.
C) $75.
D) $71.
E) $50.

Question 13

$$\begin{array} { c c c } \hline \text { Bidder } & \text { Bid per share } & \text { Shares } \\\hline \text { A } & \$ 100 & 100,000 \\\text { B } & \$ 90 & 200,000 \\\text { C } & \$ 75 & 300,000 \\\text { D } & \$ 50 & 200,000 \\\text { E } & \$ 40 & 300,000 \\\text { F } & \$ 30 & 100,000 \\\text { G } & \$ 25 & 50,000 \\\hline\end{array}$$ TABLE 15.1

-Consider the information provided in Table 15.1. Suppose that seller retains the right to stop the bidding at any price. The objective of the auction is to maximize sales revenues. At the selected bid price, the sellers revenues are:

A) $75 million.
B) $71 million.
C) $45 million.
D) $40 million.
E) None of the above.

Question 14

$$\begin{array} { c c c } \text { Bidder } & \text { Bid per share } & \text { Shares } \\\hline \text { A } & \$ 70 & 200,000 \\\text { B } & \$ 50 & 50,000 \\\text { C } & \$ 45 & 50,000 \\\text { D } & \$ 40 & 100,000 \\\text { E } & \$ 35 & 50,000 \\\text { F } & \$ 30 & 100,000 \\\text { G } & \$ 20 & 100,000 \\\hline\end{array}$$ TABLE 15.2

-Consider the information provided in Table 15.2, which represents bids in a multiple-item Dutch auction in which the seller wishes to dispose 500,000 shares. The lowest bid per share that will dispose of the entire offering is:

A) $30
B) $40
C) $45
D) $50
E) $70

Question 15

$$\begin{array} { c c c } \text { Bidder } & \text { Bid per share } & \text { Shares } \\\hline \text { A } & \$ 70 & 200,000 \\\text { B } & \$ 50 & 50,000 \\\text { C } & \$ 45 & 50,000 \\\text { D } & \$ 40 & 100,000 \\\text { E } & \$ 35 & 50,000 \\\text { F } & \$ 30 & 100,000 \\\text { G } & \$ 20 & 100,000 \\\hline\end{array}$$ TABLE 15.2

-Consider the information provided in Table 15.2. If the seller disposes of the entire offering, the auction will raise:

A) $12.5 million.
B) $13.5 million.
C) $14 million.
D) $15 million.
E) $15.75 million.

Question 16

$$\begin{array} { c c c } \text { Bidder } & \text { Bid per share } & \text { Shares } \\\hline \text { A } & \$ 70 & 200,000 \\\text { B } & \$ 50 & 50,000 \\\text { C } & \$ 45 & 50,000 \\\text { D } & \$ 40 & 100,000 \\\text { E } & \$ 35 & 50,000 \\\text { F } & \$ 30 & 100,000 \\\text { G } & \$ 20 & 100,000 \\\hline\end{array}$$ TABLE 15.2

-Consider the information provided in Table 15.2. Suppose that seller retains the right to stop the bidding at any price. If the objective of the auction is to maximize sales revenues, the offering price is:

A) $30
B) $40
C) $45
D) $50
E) $70

Question 17

$$\begin{array} { c c c } \text { Bidder } & \text { Bid per share } & \text { Shares } \\\hline \text { A } & \$ 70 & 200,000 \\\text { B } & \$ 50 & 50,000 \\\text { C } & \$ 45 & 50,000 \\\text { D } & \$ 40 & 100,000 \\\text { E } & \$ 35 & 50,000 \\\text { F } & \$ 30 & 100,000 \\\text { G } & \$ 20 & 100,000 \\\hline\end{array}$$ TABLE 15.2

-Consider the information provided in Table 15.2. Suppose that seller retains the right to stop the bidding at any price. The objective of the auction is to maximize sales revenues. At the selected bid price, the sellers revenues are:

A) $13.5 million.
B) $14 million.
C) $15 million.
D) $15.75 million.
E) $16 million

Question 18

In a perfect information auction:

A) All bidders private valuations are common knowledge.
B) Only the highest bidder's private valuation is common knowledge.
C) Only the lowest bidder's private valuation is common knowledge.
D) None of the bidders' private valuations are common knowledge, although the reservation price and the rules of the auction is known to each of the auction participants.
E) None of the above.

Question 19

In a sealed-bid, first-price auction with perfect information, the winner of the auction is:

A) The bidder who values the object least and pays what the object is worth to the next highest bidder plus the bidding increment.
B) The bidder who values the object most and pays what the object is worth to the next highest bidder plus the bidding increment.
C) The bidder who values the object least and pays what the object is worth to the highest bidder.
D) None of the above.

Question 20

In a sealed-bid, second-price auction with perfect information, the winner of the auction is:

A) The bidder who values the object least and pays what the object is worth to the next highest bidder.
B) The bidder who values the object most and pays the bid submitted.
C) The bidder who values the object most and pays what the object is worth to the next highest bidder plus the bidding increment.
D) The bidder who values the object least and pays what the object is worth to the highest bidder.
E) None of the above.

Question 21

In a sealed-bid, first-price auction in which the bidding increment is $0.01:

A) Only the winner submits a bid equal to what he or she values the object.
B) Only the loser submits a bid equal to what he or she values the object.
C) Both submit a bid that is equal to what he or she values the object.
D) Neither submit a bid that is equal to what he or she values the object.
E) None of the above are correct.

Question 22

In a sealed-bid, second-price auction:

A) Only the winner submits a bid equal to what he or she values the object.
B) Only the loser submits a bid equal to what he or she values the object.
C) Both submit a bid that is equal to what he or she values the object.
D) Neither submit a bid that is equal to what he or she values the object.
E) None of the above are correct.

Question 23

In an English auction with perfect information, the winner of the auction is the bidder who values the object:

A) Least and pays what the object is worth to the highest bidder less the bidding increment.
B) Most and pays what the object is worth plus the bidding increment.
C) Most and Pays what the object is worth to the next highest bidder plus the bidding increment..
D) Least and Pays what the object is worth to the highest bidder less the bidding increment.
E) None of the above are correct.

Question 24

In a Dutch auction with perfect information, the winner of the auction is the bidder who values the object:

A) Least and pays what the object is worth to the highest bidder less the bidding increment.
B) Most and pays what the object is worth plus the bidding increment.
C) Most and pays what the object is worth to the next highest bidder plus the bidding increment.
D) Least and Pays what the object is worth to the highest bidder less the bidding increment.
E) None of the above are correct.

Question 25

In a Dutch auction with imperfect information, the winner of the auction is the bidder who values the object:

A) Least and pays what the object is worth to the highest bidder less the bidding increment.
B) Most and pays the highest announced price that is below that value.
C) Most and pays what the object is worth to the next highest bidder plus the bidding increment.
D) Least and Pays what the object is worth to the highest bidder less the bidding increment.
E) None of the above are correct.

Question 26

In an independent private value auction:

A) The bidders know the private values of the other bidders and the values of other bidder for independent auctions.
B) The bidders know the private values of the other bidders and the values of other bidder for related auctions.
C) Risk averse bidders will not participate.
D) The bidders know their own private values, but not the private values of the other bidders.
E) None of the above.

Question 27

In a sealed-bid, second-price auction with independent private values, risk-averse bidders should:

A) Submit a bid that is equal to what the object is worth to the next highest bidder.
B) Submit a bid that is equal to what he or she believes the object is worth.
C) Submit a bid that is equal to what the object is worth to the average bidder.
D) Submit a bid that is equal to what the object is worth to the lowest bidder.
E) None of the above.

Question 28

Three individuals are bidding for a house. The individuals' private values are V₁ = $298,000, V₂ = $310,000 and V₃ = $322,000. It is generally believed that the lowest and highest possible values of the house are $250,000 and $350,000, respectively. Individual 1's optimal strategy is to submit a bid of:

A) $250,000.
B) $288,000.
C) $290,000.
D) $298,000.
E) $300,000

Question 29

Three individuals are bidding for a house. The individuals' private values are V₁ = $298,000, V₂ = $310,000 and V₃ = $322,000. It is generally believed that the lowest and highest possible values of the house are $250,000 and $350,000, respectively. Individual 2's optimal strategy is to submit a bid of:

A) $250,000.
B) $288,000.
C) $290,000.
D) $298,000.
E) $300,000

Question 30

Three individuals are bidding for a house. The individuals' private values are V₁ = $298,000, V₂ = $310,000 and V₃ = $322,000. It is generally believed that the lowest and highest possible values of the house are $250,000 and $350,000, respectively. Individual 3's optimal strategy is to submit a bid of:

A) $250,000.
B) $288,000.
C) $290,000.
D) $298,000.
E) $300,000

Question 31

In a sealed-bid, first-price auctions with independent private values:

A) Risk averse bidders should submit bids that are strictly below what each believes the object is worth.
B) Risk averse bidders should submit bids that are exactly equal to what they believe the object is worth when the number of bidders is small.
C) The bid of each risk-averse bidder will converge to his or her true value as the number of bidders increases.
D) Answers a and c are correct.
E) None of the above.

Question 32

Correlated values estimates in an auctions setting means that:

A) A bidders private value estimate affect, and are affected by, the private value estimates of other bidders.
B) Bidders know the value that they place on the object and the value placed on the object by the other bidders.
C) The winner has the most pessimistic estimate of the object's value.
D) The Bayesian Nash equilibrium is the result of a properly constructed incentive- compatible second price auction.
E) None of the above.

Question 33

Moe, Larry, Curly, and Shemp are bidding Groucho Marx' rubber duck. Their individualprivate values of the rubber duck are V_M = $50,000, V_L = $60,000, V_C = $70,000 and V_S = $80,000. It is generally believed that the lowest and highest possible values of the house are $40,000 and $100,000, respectively. Moe's optimal strategy is to submit a bid of:

A) $40,000.
B) $47,500.
C) $55,000.
D) $62,500.
E) $70,000

Question 34

Moe, Larry, Curly, and Shemp are bidding Groucho Marx' rubber duck. Their individualprivate values of the rubber duck are V_M = $50,000, V_L = $60,000, V_C = $70,000 and V_S = $80,000. It is generally believed that the lowest and highest possible values of the house are $40,000 and $100,000, respectively. Larry's optimal strategy is to submit a bid of:

A) $40,000.
B) $47,500.
C) $55,000.
D) $62,500.
E) $70,000

Question 35

Moe, Larry, Curly, and Shemp are bidding Groucho Marx' rubber duck. Their individualprivate values of the rubber duck are V_M = $50,000, V_L = $60,000, V_C = $70,000 and V_S = $80,000. It is generally believed that the lowest and highest possible values of the house are $40,000 and $100,000, respectively. Curly's optimal strategy is to submit a bid of:

A) $40,000.
B) $47,500.
C) $55,000.
D) $62,500.
E) $70,000

Question 36

Moe, Larry, Curly, and Shemp are bidding Groucho Marx' rubber duck. Their individualprivate values of the rubber duck are V_M = $50,000, V_L = $60,000, V_C = $70,000 and V_S = $80,000. It is generally believed that the lowest and highest possible values of the house are $40,000 and $100,000, respectively. Shemp's optimal strategy is to submit a bid of:

A) $40,000.
B) $47,500.
C) $55,000.
D) $62,500.
E) $70,000

Question 37

In common value auctions, differences in private valuations stem from:

A) Differences in the players' attitudes towards risk.
B) Different estimates of the actual value of the object being auctioned.
C) Differences in player types.
D) Correlated value estimates.
E) All of the above are correct.

Question 38

$$\begin{array} { c c c } \hline \text { Bidder } & \text { Bid per share } & \text { Shares } \\\hline \text { A } & \$ 50 & 5,000 \\\text { B } & \$ 45 & 10,000 \\\text { C } & \$ 40 & 40,000 \\\text { D } & \$ 40 & 25,000 \\\text { E } & \$ 35 & 10,000 \\\text { F } & \$ 30 & 15,000 \\\text { G } & \$ 20 & 35,000 \\\hline\end{array}$$ TABLE 15.3

-Suppose that Magnum Opus Corporation announces that it intends to go public by offering 100,000 shares using a multiple-item Dutch auction. Table 15.3 summarizes the offer price and number of shares of each bidder. The lowest bid per share that will dispose of the entire offering is:

A) $50
B) $40
C) $30
D) $20
E) None of the above.

Question 39

$$\begin{array} { c c c } \hline \text { Bidder } & \text { Bid per share } & \text { Shares } \\\hline \text { A } & \$ 50 & 5,000 \\\text { B } & \$ 45 & 10,000 \\\text { C } & \$ 40 & 40,000 \\\text { D } & \$ 40 & 25,000 \\\text { E } & \$ 35 & 10,000 \\\text { F } & \$ 30 & 15,000 \\\text { G } & \$ 20 & 35,000 \\\hline\end{array}$$ TABLE 15.3

-Suppose that Magnum Opus Corporation announces that it intends to go public by offering 100,000 shares using a multiple-item Dutch auction. Table 15.3 summarizes the offer price and number of shares of each bidder. If the seller disposes of the entire offering, the auction will raise:

A) $1,400,000.
B) $1,750,000.
C) $2,500,000.
D) $2,550,000.
E) None of the above.

Question 40

$$\begin{array} { c c c } \hline \text { Bidder } & \text { Bid per share } & \text { Shares } \\\hline \text { A } & \$ 50 & 5,000 \\\text { B } & \$ 45 & 10,000 \\\text { C } & \$ 40 & 40,000 \\\text { D } & \$ 40 & 25,000 \\\text { E } & \$ 35 & 10,000 \\\text { F } & \$ 30 & 15,000 \\\text { G } & \$ 20 & 35,000 \\\hline\end{array}$$ TABLE 15.3

-Suppose that Magnum Opus Corporation announces that it intends to go public by offering 100,000 shares using a multiple-item Dutch auction. Table 15.3 summarizes the offer price and number of shares of each bidder. If the objective of the auction is to maximize sales revenues, the seller's reservation price is:

A) $50
B) $45
C) $35
D) $25
E) None of the above.

Question 41

$$\begin{array} { c c c } \hline \text { Bidder } & \text { Bid per share } & \text { Shares } \\\hline \text { A } & \$ 50 & 5,000 \\\text { B } & \$ 45 & 10,000 \\\text { C } & \$ 40 & 40,000 \\\text { D } & \$ 40 & 25,000 \\\text { E } & \$ 35 & 10,000 \\\text { F } & \$ 30 & 15,000 \\\text { G } & \$ 20 & 35,000 \\\hline\end{array}$$ TABLE 15.3

-Suppose that Magnum Opus Corporation announces that it intends to go public by offering 100,000 shares using a multiple-item Dutch auction. Table 15.3 summarizes the offer price and number of shares of each bidder. If the objective of the auction is to maximize sales revenues, total revenues at the seller's reservation price is:

A) $2,550,000.
B) $2,600,000.
C) $2,750,000.
D) $2,800,000.
E) None of the above.

Question 42

Suppose that Hans and Frans are bidding for an 1878CC Morgan silver dollar. Hans knows that Frans is willing to pay $1,150. Frans knows that Hans is willing to pay $975. Suppose that the seller's reservation price is $800 and bids are in $100 increments. Frans' dominant strategy in a sealed-bid, second-price auction is to submit a bid of:

A) $800.
B) $900.
C) $1,000.
D) $1,100.
E) None of the above.

Question 43

Suppose that Hans and Frans are bidding for an 1878CC Morgan silver dollar. Hans knows that Frans is willing to pay $1,150. Frans knows that Hans is willing to pay $975. Suppose that the seller's reservation price is $800 and bids are in $100 increments. Hans' dominant strategy in a sealed-bid, second-price auction is to submit a bid of:

A) $800.
B) $900.
C) $1,000.
D) $1,100.
E) None of the above.

Question 44

Suppose that Hans and Frans are bidding for an 1878CC Morgan silver dollar. Hans knows that Frans is willing to pay $1,150. Frans knows that Hans is willing to pay $975. Suppose that the seller's reservation price is $800 and bids are in $100 increments. The winner of this sealed-bid, second-price auction will pay:

A) $900.
B) $1,000.
C) $1,100.
D) $1,200.
E) None of the above.