Question

Consider a 2-person private value, first-price auction. The object is worth $10,000 to bidder 1 who knows that bidder 2’s value is uniformly distributed between 0 and $40,000. Assume that bidder 2 is going to use his equilibrium bidding strategy.

a) What is bidder 1’s optimal bid for his value $10,000 and what is his expected payoff?

b) Assume that bidder 1 learns that the object is worth $22,000 to bidder 2 and in turn, bidder 2 is not aware that bidder 1 has this information and would therefore stick to his equilibrium strategy. How much should bidder 1 bid and what is his expected payoff?

c) Assume that bidder 1 learns that the object is worth $14,000 to bidder 2 and in turn, bidder 2 is not aware that bidder 1 has this information and would therefore stick to his equilibrium strategy. How much should bidder 1 bid and what is his expected payoff?

Answer 1

1) ans : D )The central concept underlying the production possibilities curve is that of limited resources.

as production possibility frontier tells about how much we cn produce give the resources.

2)ans :C )increases product supply.

as subsidy means reducing cost of supplier. So he produces more.

3)ans : A)increase.

By law of demand

4)ans :D)resources are perfectly shiftable (equally efficient) among alternative uses.

this is assumption production possibility curve

5)ans:B) enhances economic growth by increasing the probability that a person can gain from making investments today

As private property right gives sole right for profit.So this will make man investing and which increases growth

6)ans :D)shift outward

as growth inrease means production has increased. so it will sghift outward

7)ans :A) real per capita Gross Domestic Product (GDP) growth will be less than the growth of real Gross Domestic Product (GDP).

this is bcoz as percapita GDP = GDP/population .so if population increase, percapita gdp decreases

8) ans :D. )the rate of population growth increases at the same rate as economic growth.

this is based on empirical research