What is the difference between the optimizing strategies used in an English auction and a Dutch auction?
What will be an ideal response?
In an English auction, it is an optimal strategy to continue bidding as long as price is below the bidder's willingness to pay for the item being auctioned. In a Dutch auction, on the other hand, the starting bid is much higher than any bidder's willingness to pay. The auctioneer lowers the price until one bidder accepts it and pays an amount equal to his bid. In a Dutch auction, a bidder should bid below his willingness to pay for the item. This is because if a bidder accepts the price when it reaches his willingness to pay for the item, he will earn zero consumer surplus. However, if he does not accept the offer and lets the price fall further, he has a higher chance of losing because another bidder might accept it. This risk increases if there is a larger number of bidders. Therefore, in a Dutch auction, the optimal bid is determined by multiplying the bidder's willingness to pay by the number of other competitors and dividing it by the total number of bidders.
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Suppose there are seven firms in a market where the three largest firms supply 20% of the market-clearing quantity and the other four firms supply 10% of the market-clearing quantity. What is the five-firm concentration ratio (i.e
, the share of total sales controlled by the five largest firms in the market)? A) 60% B) 70% C) 80% D) 90%
Demand functions are "homogeneous of degree zero in all prices and income." This means:
a. a proportional increase in all prices and income will leave quantities demanded unchanged. b. a doubling of all prices will not alter consumption decisions. c. prices directly enter individuals' utility functions. d. an increase in income will cause all quantities demanded to increase proportionately.