Questions Exercise 06.07 Algorithmic « Question 2 of 6 > Check My Work O {Exerci
ID: 3312341 • Letter: Q
Question
Questions Exercise 06.07 Algorithmic « Question 2 of 6 > Check My Work O {Exercise 6.07 (Algorithmic)} Suppose we are interested in bidding on a piece of land and we know one other bidder is interested. The seller announced that the highest bid in excess of $9,900 will be accepted. Assume that the competitor's bid x is a random variable that is uniformly distributed between $9,900 and $14,600. O a. Suppose you bid $12,000. What is the probability that your bid will be accepted (to 2 decimals)? .38 3 b. Suppose you bid $14,000. What is the probability that your bid will be accepted (to 2 decimals)? .78 C. What amount should you bid to maximize the probability that you get the property (in dollars)? 151008 d. Suppose that you know someone is willing to pay you $16,000 for the property. You are considering bidding the amount shown in part (c) but a friend suggests you bid $12,950. If your objective is to maximize the expected profit, what is your bid? Bid $12950 to maximize the expected profit What is the expected profit for this bid (in dollars)? 'Hide feedback Partially CorrectExplanation / Answer
Solution:- I have the following:
f(x) = (1/(14600-9900))/0 (elsewhere) = 1/4700
a. P(9900 < x < 12,000) = 2100(1/4700) = 0.45
b. P(9900 < x < 14,000) = 4100(1/4700) = 0.87
c. hence,the maximum probability value is 1
=> 14601
d. then the profit will be = 14600 - 12950 = 1650
Probability of wining the bid at 12950 is (12950-9900) / 4700 = 0.6489
The expected profit : 0.6489*1650 = 1070.685
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.