Week 7 Assignment Managerial Economics

Individual Problems 18-3

A reserve price is a minimum price set by the auctioneer. If no bidder is willing to pay the reserve price, the item is unsold at a profit of $0 for the auctioneer. If only one bidder values the item at or above the reserve price, that bidder pays the reserve price. An auctioneer faces two bidders, each with a value of either $126 or $168, with both values equally probable. Without a reserve price, the second highest bid will be the price paid by the winning bidder.

Don't use plagiarized sources. Get Your Custom Essay on
Week 7 Assignment Managerial Economics
Just from $13/Page
Order Essay

The following table lists the four possible combinations for bidder values. Each combination is equally likely to occur.

On the following table, indicate the price paid by the winning bidder with and without the stated reserve price.

Bidder 1 ValueBidder 2 ValueProbabilityPrice Without ReservePrice with $168 Reserve Price
($)($)($)
$126$1260.25  
$126$1680.25  
$168$1260.25  
$168$1680.25  

Without a reserve price, the expected price is . 

With a reserve price of $168, the expected price is . 

Thus, the expected price is larger (with / without_) the reserve price.

 Individual Problems 18-4

In Sweden, firms that fail to meet their debt obligations are immediately auctioned off to the highest bidder. (There is no reorganization through Chapter 11 bankruptcy.) The current managers are often the high bidders for the company. (Hint: Assume these auctions are common-value auctions.)

Suppose for a particular auction, the current managers have placed a bid of $15 million.

True or False: To avoid the winner’s curse, you should avoid bidding in such auctions.

TrueFalse

 Individual Problems 18-5

When a famous painting becomes available for sale, it is often known which museum or collector will be the likely winner. Yet, the auctioneer actively woos representatives of other museums that have no chance of winning to attend anyway.

Suppose a piece of art has recently become available for sale and will be auctioned off to the highest bidder, with the winner paying an amount equal to the second highest bid. Assume that most collectors know that Alex places a value of $125,000 on the art piece and that he values this art piece more than any other collector. Suppose that if no one else shows up, Alex simply bids $125,0002=$62,500$125,0002=$62,500 and wins the piece of art.

The expected price paid by Alex, with no other bidders present, is

.

Suppose the owner of the artwork manages to recruit another bidder, Brian, to the auction. Brian is known to value the art piece at $100,000.

The expected price paid by Alex, given the presence of the second bidder Brian, is

.

 Individual Problems 18-6

Bob Green estimates the cost of future projects for a large contracting firm. Bob uses precisely the same techniques to estimate the costs of every potential job and formulates bids by adding a standard profit markup. For some companies, to which the firm offers its services, there are no competitors also seeking their business, so Bob’s company is almost certain to get these companies as clients. For these jobs, Bob finds that his cost estimates are right, on average. For jobs where competitors are also vying for the business, Bob finds that they almost always end up costing more than he estimates.

True or False: Bob is less likely to win the jobs where he underestimates the costs, causing him to experience the winner’s curse.

True

False

 Individual Problems 19-1

In the late 1990s, car leasing was very popular in the United States. A customer would lease a car from the manufacturer for a set term, usually two years, and then have the option of keeping the car. If the customer decided to keep the car, the customer would pay a price to the manufacturer, the “residual value,” computed as 60% of the new car price. The manufacturer would then sell the returned cars at auction. In 1999, manufacturers lost an average of $480 on each returned car (the auction price was, on average, $480 less than the residual value).

Suppose two customers have leased cars from a manufacturer. Their lease agreements are up, and they are considering whether to keep (and purchase at 60% of the new car price) their cars or return their cars. Two years ago, Rosa leased a car valued new at $12,000. If she returns the car, the manufacturer could likely get $8,400 at auction for the car. Tim also leased a car, valued new at $19,000, two years ago. If he returns the car, the manufacturer could likely get $9,880 at auction for the car.

Use the following table to indicate whether each buyer is more likely to purchase or return the car.

BuyerKeep and Purchase CarReturn Car
Rosa
Tim

The manufacturer will lose money (at auction, relative to the residual value of the car) if returns the car instead of keeping and purchasing it.

True or False: Setting a more accurate residual price of each car would help attenuate the problems of adverse selection.

True

False

 Individual Problems 19-2

Many police officer positions require the applicant to have a college degree, even though the tasks of a police officer rarely call upon college course material.

Suppose two individuals who do not have college degrees are considering applying to the police force. Ginny is considering applying for an officer position and plans on working for the police force for a period of time, over which she would earn approximately $7,000 (in present discounted value) in earnings while in the position. Cho is also considering applying, and plans on working as an officer for a period of time, over which she would earn approximately $420,000 (in present discounted value) in lifetime earnings while in the position. Also suppose that present value of obtaining a college degree, which is required to submit a job application to the police department, is $70,000.

Use the following table to indicate whether each individual would likely apply, or not, given the cost of obtaining a college degree.

BuyerWould ApplyWould Not Apply
Cho
Ginny

Calculate the price
Make an order in advance and get the best price
Pages (550 words)
$0.00
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Upload your instructions
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with Writall
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
Testimonials
See why 20k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
Nursing
Thank you!!
Customer 454959, February 6th, 2022
Social Work and Human Services
Good job, I will make the necessary adjustments to make it a little more personal to fit my needs.
Customer 453933, September 21st, 2020
Cyber Warfare
Got a 94% thank you!
Customer 452961, August 8th, 2021
Nursing
Thank you!
Customer 454959, February 6th, 2022
Nursing
Job well done!
Customer 455293, April 15th, 2022
Other
Great writer
Customer 454983, March 14th, 2022
Management
Great paper and done before the deadline. Thank you
Customer 454659, October 20th, 2021
Health Care
Excellent job
Customer 454677, March 9th, 2021
Psychology
Thanks
Customer 453933, January 13th, 2021
IT, Web
Good job
Customer 455223, December 21st, 2021
Management
I got an A in this deliverable 2 today. Thanks
Customer 453877, February 6th, 2020
Criminal Justice
Absolutely LOVE having help especially from the person who wrote this last one. THANK YOU
Customer 454561, February 16th, 2021
11,595
Customer reviews in total
96%
Current satisfaction rate
3 pages
Average paper length
37%
Customers referred by a friend
OUR GIFT TO YOU
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat
Live Chat+1(978) 822-0999EmailWhatsApp