Anna's Antiques expects to get two bidders for the unique china teacup it sells.Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability.If Anna holds an auction between the two customers,the expected value of this auction is
A)$70
B)$78
C)$85
D)$100

Question

Anna's Antiques expects to get two bidders for the unique china teacup it sells.Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability.If Anna holds an auction between the two customers,the expected value of this auction is
A)​$70
B)$78
C)$85
D)​$100

Quizplus · Accepted Answer

The expected value of the auction is the average of the possible outcomes, weighted by their probabilities. The possible outcomes are $100 and $70, each with a probability of 1/2. Therefore, the expected value is (1/2) * $100 + (1/2) * $70 = $85.

Anna's Antiques Expects to Get Two Bidders for the Unique