Robert is participating in a Dutch auction. If he values the item ...

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Robert is participating in a Dutch auction. If he values the item being auctioned at 5,500 and there are 5 bidders in total, what should Robert's optimal bidding strategy be?
 
  What will be an ideal response?

Question 2

Because the United States has ________ advantage compared to China in producing airplanes, China can buy airplanes from the United States at a ________ opportunity cost than that at which China can produce them.
 
  A) comparative; lower
  B) comparative; higher
  C) absolute; lower
  D) absolute; higher
  E) None of the above because China will produce airplanes and sell them to the United States.

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Answer to Question 1

A Dutch auction is an open-outcry auction in which the auctioneer starts bidding at a price far above any bidder's willingness to pay and lowers the price until one bidder accepts the offer. If a bidder accepts the offer when the price equals his value for the good being auctioned, he wins the auction but earns zero consumer surplus. However, if he does not accept the offer, there is a possibility that another bidder will accept the offer. A simple strategy to optimize in this case is to multiply willingness to pay by the number of other bidders divided by the total number of bidders. Robert should follow a similar strategy and place a bid when price reaches 5,500  4/5 = 4,400.

Answer to Question 2

A