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# workshop 9 - choose it the cost was 2 c 5 A ﬁrm employs...

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ECOS2201 - Economics of Competition and Strategy Workshop - 9 1. In a private value situation explain why english auctions and second price sealed- bid auctions are equivalent. Are they equivalent in a common value situation? 2. A business woman has to sell her australian business for political reasons. She determines to sell it by auction and has a choice between a first-price sealed bid auction and an English auction. The value of her business is the same for each potential bidder, but the bidders have different estimates of this value. Which auction method should she choose and why? 3. What is meant by adverse selection and explain why it might lead to the non- existence of some markets (eg the market for high quality used cars). 4. How would the education signalling model presented in class change if instead of the cost of education to the low productivity type being infinite (so they never
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Unformatted text preview: choose it) the cost was 2 c . 5. A ﬁrm employs two types of workers, I and II. Type I generate revenue of 100,000 and Type II generate revenue of 200,000. If the ﬁrm could observe type they would pay Type I workers 100,000 and Type II workers 200,000. However, they can not observe type but can observe years of education, y . The ﬁrm knows that the cost of one year of education for a Type I worker is 40,000 and for a Type II worker is 20,000. For what values of y is their a separating equilibrium in which Type 1 workers obtain less than y years of education and are paid 100,000 while Type II workers obtain at least y years of education and are paid 200,000. (a) ≤ y ≤ 5 (b) 2 . 5 ≤ y ≤ 5 (c) 2 . 5 ≤ y ≤ 10 (d) ≤ y ≤ 2 . 5 1...
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