ch16 - File Ch16 CHAPTER 16 Auctions and Competitive...

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File: Ch16; CHAPTER 16: Auctions and Competitive Bidding Each question contains a code showing the section of the chapter text from which it was taken. The codes for this chapter are: Code Section 1 The Advantages of Auctions 2 Bidder Strategies 3 Optimal Auctions MULTIPLE CHOICE 1. A manager recommends selling one of the firm’s divisions to a prospective buyer, rather than soliciting competitive bids from other firms. Does this strategy make sense? a) Yes, it is quicker, less expensive, and is likely to provide a better price than a bidding competition. b) No, soliciting competing bids is always superior than negotiating with a single buyer. c) No, competitive bids will provide a better price, provided there are 3 or more buyers. d) It depends. Multiple bids are likely to provide a better price, but are also costly and time consuming. e) Yes, negotiating a fixed sale price with the buyer in hand minimizes the firm’s risk. ANSWER: d SECTION: 1 2. Assuming a uniform distribution of offers between $100,000 and $175,000, what would be the maximum expected price from 9 potential buyers? a) $125,000 b) $137,500 c) $155,000 d) $167,500 e) $175,000 ANSWER: d SECTION: 3 3. In an English auction with private buyer values, a) There are higher and higher oral bids until the bidding stops. b) A typical buyer shades its bid below his true private value. c) Increasing the number of competitors causes each buyer to raise its bid. d) The final price is approximately equal to the second highest buyer value. e) Answers a and d are both correct. ANSWER: e SECTION: 2 4. Auctions are a viable method of selling an item a) Except when one-on-one negotiations with a buyer are possible. 16-1
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Auctions and Competitive Bidding b) But can be inferior to posted pricing when demand uncertainty is great. c) When a competitive market fails to exist. d) Only if the item at auction is unique. e) Answers b and c are both correct. ANSWER: c SECTION: 1 5. A buyer's reservation price a) Is equal to buyer's initial bid in an English auction. b) Is set at a level allowing the buyer an adequate profit in the auction. c) Is always equal to the buyer's optimal bid in a sealed-bid auction. d) Increases as the number of bidders increases. e) Is the buyer's value for the item, i.e., his walk-away price. ANSWER: e SECTION: 2 6. An auction characterized by descending bids is termed a(n) a) English auction. b) Dutch auction. c) French auction. d) Sealed-bid auction. e) Unsuccessful auction. ANSWER: b SECTION: 2 7. The following auctions are strategically equivalent for bidders holding private values: a) English = Dutch. b) Sealed-Bid = Second-Price. c) English = Second-Price. d) Sealed-Bid = Dutch. e)
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This note was uploaded on 03/11/2012 for the course ECON 333 taught by Professor Barkley during the Fall '08 term at CSU Fullerton.

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ch16 - File Ch16 CHAPTER 16 Auctions and Competitive...

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