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.If the number of bidders goes up to 65,Molly's optimal bid for the product would be ________,and her consumer surplus would be ________.
A) $836.92; $13.08
B) $831.11; $18.89
C) $765.50; $25
D) $750; $28.50

Question

Quizplus · Accepted Answer

Molly's optimal bid in a first-price auction, where there are n bidders, can be calculated using the following formula:

Molly's optimal bid = [(n-1)/n] x Molly's value

Using this formula, when the number of bidders increases to 65, Molly's optimal bid would be:

[(65-1)/65] x $850 = $836.92

Molly's consumer surplus can be calculated by subtracting her optimal bid from her value:

Consumer surplus = Molly's value - Molly's optimal bid = $850 - $836.92 = $13.08.

Therefore, the correct answer is A) $836.92; $13.08.

Scenario: Consider the Following Situation