You are competing for a contract in a second-price auction. The cost for you to fulfill...

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You are competing for a contract in a second-price auction. Thecost for you to fulfill the contract is $10m. Check if each of thefollowing statements is true. If not, change the statement to makeit correct.
1. If with probability 0.4, the lowest cost of your competitorsis $6m and with probability 0.6, it is $15m. Then your expectedprofit from the auction is $1.4m.
2. (4 points) If one of your competitors can fulfill thecontract at cost $7m, then you are going to lose at least $3m.
3. (4 points) If 30% of chance that one of your competitors hasa cost below $6m, 30% of chance that all of them have a cost above$16m, and 40% of chance all of them have a cost somewhere between$8m and $11m. Then your expected profit is at least $1.8m.
4. (4 points) If all your competitors inflate their ask pricesabove their costs by 10%, then you will be worse if you do not doso.

Answer & Explanation Solved by verified expert

4.3 Ratings (843 Votes)

Theory In second price auction you pay the price of lowest bidder in the market excluding you that means if someone bids less than your bid you will get lower bid amount you make loss if everyone bids more than your bid you will get higher bid amount you make profit statement 1 is true See Answer

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