What will be the profits net of investment made by seller

Reference no: EM133198206

Assignment:

Problem 1 (Auctions).

A developer of a new technology τ can use the technology to produce an output with market value equal to 45. However, she wants to sell the rights of use of the technology at auction to reach a higher profit. She is considering sellign the technology and has hired the company you work for to help her decide how to sell it. You suggest she should use a sealed-bid first-price auction or a seald-bid second-price auction to allocate the technology. There are three potential buyers of the technology in the auction: Firms 1, 2 and 3. Their profit functions are:

II₁= 40 -C(τ), II₂ = 60 -C(τ) and II₃= 80 -C(τ) respectively, where C(τ) is the cost of using technology τ in the production process. This profit functions are private information, that is, a firms knows only its own profit function, and the seller does not have access to this information. Answer the following items assuming the seller and all firms are profit maximisers.

1. Should the auctioneer set a reserve price? If so, what should the reserve price be for this auction?

2. If the selling mechanism is a first-price auction, who will win the auction? What will be the winner's bid? How much will the winner pay? And what will be the winner's profit when it starts using the technology?

3. If the selling mechanism is a second-price auction, who will win the auction? What will be the winner's bid? How much will the winner pay? And what will be the winner's profit when it starts using the technology?

4. What will be the profits net of investment made by the seller?

Write a short essay, there is no mimunmlength, but the maximum length for the essay is 500 (+/- 10%) words answering the following items

1. What is price discrimination? Mention the three types covered during the lectures

2. Why do firms seek to implement some type of price discrimination?

3. What do we understand for versioning? Provide 4 examples of versioning. At least one should be different from the cases covered during the lectures.

4. In a graph show how price discrimination works when the good is offered in three different versions. Indicate the consumer's and producer's surpluses in the graph.

Reference no: EM133198206

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