A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.If the market maker decides to only make one transaction what is his profit/bid-ask margin
A)$8
B)$10
C)$12
D)$16

Question

A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.If the market maker decides to only make one transaction what is his profit/bid-ask margin
A)​$8
B)$10
C)$12
D)​$16

Quizplus · Accepted Answer

The market maker should choose the highest bid and lowest ask prices to maximize profit or the bid-ask margin. In this case, the highest bid price is $15, and the lowest ask price is $5. The bid-ask margin would be the difference between the bid and ask prices, which in this case is $15 - $5 = $10. Therefore, the answer is (B) $10.

A Market Maker Faces the Following Demand and Supply for Widgets.Eleven