Suppose that a government wishes to auction 5 million bonds (quantity),and three potential buyers submit the following bids: $$\begin{array} { l c l }
& \text { Price } & \text { Quantity } \
\text { Buyer A } & \$ 1,015 & 2 \text { million } \
\text { Buyer B } & \$ 1,000 & 3 \text { million } \
\text { Buyer C } & \$ 990 & 1 \text { million }
\end{array}$$
In a discriminatory auction:

Question

Suppose that a government wishes to auction 5 million bonds (quantity),and three potential buyers submit the following bids: $$\begin{array} { l c l } 
& \text { Price } & \text { Quantity } \
\text { Buyer A } & \$ 1,015 & 2 \text { million } \
\text { Buyer B } & \$ 1,000 & 3 \text { million } \
\text { Buyer C } & \$ 990 & 1 \text { million }
\end{array}$$
In a discriminatory auction:

Quizplus · Accepted Answer

In a discriminatory auction, each buyer pays the price they bid for the quantity they requested. Therefore, Buyer A pays $1,015 for 2 million bonds, and Buyer B pays $1,000 for 3 million bonds. Buyer C's bid is not high enough to receive any bonds in this auction. This method maximizes the revenue for the seller (government) as each buyer pays the highest price they are willing to pay.

Suppose That a Government Wishes to Auction 5 Million Bonds