How do auctions help in price discovery? What will be an ideal ...

[nramada]

How do auctions help in price discovery?
 
  What will be an ideal response?

Question 2

Refer to Table 6-5. Katie Graham owns a kayak rental service in Santa Barbara. Table 6.5 shows her estimated demand schedule for kayak rentals per week. She would like to increase her sales revenue by changing the price she charges for rentals.
 
  At present she charges 75. Based on the information in the table, Katie
  A) should raise her price to 80 to increase her revenue because the demand for kayak rentals is price inelastic.
  B) should raise her price to earn the most revenue.
  C) should lower her price to 60 to increase her revenue because the demand for kayak rentals is price elastic.
  D) is not able to increase her revenue by changing her price because the demand for kayak rentals is unit elastic.

[diana chang]

Answer to Question 1

Auctions help in price discovery for goods that do not have well-established prices. For example, for a good that may interest only a few buyers, like a painting, an auction might be a good way of discovering what the appropriate price will be and finding the right buyer. In general, it is common for goods that are unique, with relatively few buyers, to be auctioned.

Answer to Question 2

D