Scenario: Tom, Pat, Arthur, and Julie are participating in a second-price auction for a good. Tom values the good at $150, Pat values it at $180, Arthur values it at $250, and Julie values it at $200.
-Refer to the scenario above.The winner of this auction will earn a surplus of ________ if he or she follows his or her dominant strategy.
A) $100
B) $50
C) $400
D) $200

Question

Quizplus · Accepted Answer

In a second-price auction, the highest bidder wins but pays the second-highest bid. Arthur values the good the most at $250, so he wins but pays the next highest bid, which is Julie's $200. Arthur's surplus is his valuation minus what he pays: $250 - $200 = $50.

Scenario: Tom, Pat, Arthur, and Julie Are Participating in a Second-Price