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A consumer's value for a good you sell may be low ($2), medium ($5), or high ($7). Suppose each type is equally likely to walk into your store on any given day. If marginal cost is zero, and two customers walked into your store and you decided to quote a single price, you will choose a price of $ either 2, 5 or 7? because the expected revenue is the highest at this price. If instead of quoting a single price you had the two customers participate in a second-price auction, the best estimate of the expected revenue from the auction is $?
(Hint for the auction part: there are nine possibilities in terms of the valuations of the two customers that walk into your store, and each of these possibilities is equally likely)
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