You are asked to bid on a first edition copy of Snedecor's Statistical Methods at an auction. You are bidding for a friend and the friend gives you $11600 and tells you that if you win the item for her then you can keep whatever is leftover and if you lose the auction then you simply return the $11600 to her. At the auction, there is only one other bidder and you believe their bid for the item will be uniformly distributed between $2300 and $10100. The winner of the auction is the highest bidder and they pay the amount of the loser's bid (similar to eBay).

Required:

If you submit a bid of $8140 what is your expected profit, E(profit)? Note: profit is revenue minus cost.

Answer rating: 100% (QA)

Exhibit 610a At the auction there is only one other bidder an... View the full answer