Suppose we are interested in bidding on a piece of land an interested.\' The sel

Question

Suppose we are interested in bidding on a piece of land an interested.' The seller announced that t Assume that the competitor's bid x is a random variable that is uniformly distributed between $10,000 and $15,000. a. Suppose you bid $12,000. What is the probability that your bid will be accepted? b. Suppose you bid $14,000. What is the probabili c. What amount should you bid to d we know one other bidder is he highest bid in excess of $10,000 will be accepted ty that your bid will be accepted? property? Suppose you know someone who is willing to pay you S16,000 for the property Would you consider bidding less than the amount in part (c)? Why or why not? d.

Explanation / Answer

Answers to the question are as follows:

a. P(X=12000) = 12000-10000/ 15000-10000 = .40
This is chance of a $12000 bid getting accepted

b. P(X=14000) = 14000-10000/15000-10000 = .8
This is chance of $14000 bid getting accecpted

c. A $15000 best will maximize this probability to 1

d. No. I will still bid $15000, as the another bidder cannot increase his bid beyong this point. The upper and lower bid amount specified by him is $15000 and $10000

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