Which of the following correctly describes the winner's curse?
a. When firms are bidding on an asset of uncertain value, the winning bid is not the average bid, which may be the most reliable estimate of the asset's true value. Instead the winning bid is the lowest bid, and so is the most pessimistic estimate of the asset's value.
b. When firms are bidding on an asset of uncertain value, the winning bid is not the average bid, which may be the most reliable estimate of the asset's true value. Instead the winning bid is the highest bid, and so is the most optimistic estimate of the asset's value.
c. When firms are bidding on an asset of uncertain value, the winning bid is the average bid, and thus is the most reliable estimate of the asset's value. The winner is cursed because only the most pessimistic bidder has a chance to earn economic rents on the asset.
d. When firms are bidding on an asset of uncertain value, the winning bid is not the highest bid, which may be the most reliable estimate of the asset's true value. Instead the winning bid is the average bid, and so is the most optimistic estimate of the asset's value.
b
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Consider an auctioneer who is selling an item through an auction. It is known that the 10 risk-neutral bidders have independent private values that are uniformly distributed between $1,000 and $2,000. Based on this information, we can conclude that the expected revenue in this auction will be:
A. $2,000. B. $1,000. C. $1,900. D. There is insufficient information to determine the expected revenue.
In the case of perfectly inelastic demand, the demand curve is:
A. upward sloping. B. downward sloping. C. vertical. D. horizontal.