5. Consider a general private value auction:

(a) What is the optimal bidding strategy in a sealed bid second price auction? Explain

your answer.

(b) What is the optimal bidding strategy in a sealed bid first price auction? Explain

your answer.

(c) If you were bidding in an auction (e.g., a potential buyer), would you prefer a

sealed bid first price auction or a sealed bid second price auction? Explain your

answer.

6. A homogeneous-good duopoly faces an inverse market demand function of p = 50Q.

(a) Assume that both firms face the same constant marginal cost, MC1 = MC2 = 10.

Calculate the output of each firm, the market output, and the market price in a

Nash-Cournot equilibrium.

(b) Explain the equilibrium outcome that would arise if the firms engaged in Bertrand

(price) competition, rather than Cournot (quantity) competition.

(c) Re-solve part (a) assuming that the marginal cost of firm 2 rises to MC1 = 15.3