Scenario: Consider the following situation. Molly is one among the sixty-one bidders who take part in a first-price auction for vintage furniture. Molly places a value of $850, the highest value, for a vintage dressing table that comes up for auction. Joseph has the second-highest willingness to pay of $750.
-Refer to the scenario above.Which among the following is a possible outcome if the number of bidders falls to 45?
A) There will be no change in the outcome of the auction.
B) The optimal bid for Molly will now be $831.11.
C) The optimal bid for Molly will now be $745.
D) The optimal bid for Molly will now be $845.

Question

Quizplus · Accepted Answer

In a first-price auction, the optimal bid is calculated as the bidder's highest value minus the second-highest value, divided by the number of bidders minus one. Using this formula, Molly's optimal bid with 61 bidders would be (850 - 750) / 60 = $1.67. However, if the number of bidders falls to 45, Molly's optimal bid would be (850 - 750) / 44 = $11.36. When rounded to the nearest dollar, this becomes $11. Therefore, Molly's optimal bid in a 45-bidder auction would be $850 - $11 = $839. Thus, option B is the correct answer.

Scenario: Consider the Following Situation