Question

Suppose that a government auctions 40 licenses each month. Last month, in the first auction, 25 people bid 3.2 pounds of protein, 20 people bid 3.1 pounds, 15 people bid 3.0 pounds, 5 people bid 2.9 pounds, and 10 people bid 2.8 pounds.

	7.1.	What was the lowest winning bid in the auction last month?
		A.  3.2 pounds of protein B.  3.1 pounds of protein C.  3.0 pounds of protein D.  2.9 pounds of protein E.  2.8 pounds of protein

Suppose that a government auctions 40 licenses each month. Last month, in the first auction, 25 people bid 3.2 pounds of protein, 20 people bid 3.1 pounds, 15 people bid 3.0 pounds, 5 people bid 2.9 pounds, and 10 people bid 2.8 pounds.

	7.2.	Suppose that in the auction from last month you did not win a license. Remember that if you can fish, you catch 4 pounds of protein this month. If you hunt, you catch 1 pound of protein. Suppose that you think everyone else will bid the same way again this month, and the lowest winning bid will stay the same. Among these choices, which is your best strategy this month?
		A.  Bid 3.3 pounds of protein. B.  Bid 3.2 pounds of protein. C.  Bid 3.1 pounds of protein and submit your bid very early. D.  Don't bother to bid.

Suppose that a government auctions 40 licenses each month. Last month, in the first auction, 25 people bid 3.2 pounds of protein, 20 people bid 3.1 pounds, 15 people bid 3.0 pounds, 5 people bid 2.9 pounds, and 10 people bid 2.8 pounds.

	7.3.	Suppose that students who were initially confused learn how the auction works. Suppose that they are being graded on the basis of how much total protein they are able to consume. In this case, which of the following is a more likely outcome in an auction of the licenses?
		A.  The winning bid is just below a price of 3 pounds of protein. B.  The winning bid is just above a price of 3 pounds of protein.

Answer 1

Q.7.1.

Usually this type of question is solved using backward analysis. Starting from the lowest bid, if 10 people got 2.8 pounds, all of them got licenses. Moving up, 5 people bid 2.9 pounds, so a total of 15 licenses have been given away. Then 15 more people bid 3 pounds, so a total of 30 licenses have been given away. Moving further up, 20 people bid 3.1 pounds. So only 10 among them could get the license.

Hence lowest winning bid in the auction last month is 3.1 pounds of protein.

Correct Ans - B