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nwohio_single
Feb 19, 2011, 06:35 PM
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 $9,600 will be accepted. Assume that the competitor's bid x is a random variable that is uniformly distributed between $9,600 and $15,300.

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 $12,800. If your objective is to maximize the expected profit, what is your bid?

Stay with your bid in part ©; it maximizes expected profit
Bid $12,800 to maximize the expected profit

What is the expected profit for this bid (in dollars)?