Decision-making in a business

1) i) [For all the questions today, assume that the seller only sells if your bid is
strictly higher than the firm’s value] Suppose the value of a firm is uniformly
distributed in the interval [0, 50]. The seller knows the value of the firm. You
are the buyer and you don’t know the value of the firm. You know that if you
acquire the firm, its value will go up by 50%. What is your expected value
from bidding b for the firm? What is your optimal bid?
ii) What is your expected value from bidding b for the firm, under the cursed
equilibrium model? What is your optimal bid under this model?
iii) Suppose the value of a firm is equally likely to be 0 or 50. The seller knows
the value of the firm. You are the buyer and you don’t know the value of the
firm. You know that if you acquire the firm, its value will go up by 50%. What
is your expected value from bidding b > 40 for the firm? Calculate the same
for b ≤ 40. What is your optimal bid?
2) The second question is a decision-making task. You will be provided a link
to a survey, and you would be asked to put in your student ID at the very end,
as a proof of completion. Download the file and then click on the link to
complete it: Hyperlink.

Sample Solution

ACED ESSAYS