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HO26 Final_Exam_09

# HO26 Final_Exam_09 - MS&E 352 Decision Analysis II MS&E 352...

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MS&E 352 Decision Analysis II 03/12/2009 ____________________________________________________________________________________________ ___________________________________________________________________________________________ 03/12/09 page 2 of 12 Final Exam Problem 1 – Auctions (50 points) PART I – Billionaire Art Lovers (20 points) You work for Bill G., an eccentric risk-neutral billionaire art lover, who is considering entering a sealed-bid, first-price auction for a classy painting. The value of the painting to Bill G. is independent of the bid amount. After much thoughtful analysis, you have constructed two graphs that provide insight into Bill G.’s bidding situation. Unfortunately, the numbers on the x-axis of one of the graphs have been erased. All you can be sure of is that you have done your analysis correctly. Here are the graphs: (Please note that the two graphs might have different horizontal scales) Certain Equivalent of Bill G.'s Bid Deal vs Bid Amount -12 -10 -8 -6 -4 -2 0 2 4 6 8 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 Bill G.'s Bid Amount (\$K) Certain Equivalent (\$K) Probability Bill G. Acquires Painting vs Bid
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