More bidders increase the selling price in a second-price auction because
a. the true values of the losers is higher
b. the true value of the winner is higher
c. bidders bid more aggressively
d. bidders shade their bids by less
a
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Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months. If they live alone, they each rent a one bedroom, one bath apartment for $500 per month, while if they are roommates, they can split a two bedroom, one bath apartment for $800 per month. The one difficulty they have is that Moe snores very loudly. Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month. Moe could obtain a snore-eliminating device for $50 per month. Curly and Moe have both taken an economics course and so are willing to apply the Coase theorem and negotiate. Who will compensate the other?
A. Neither Moe nor Curly has the initial property right, and so neither will compensate the other. B. Curly must compensate Moe because Curly is the one who is bothered by the snoring. C. Moe must compensate Curly because Moe is the one who is snoring. D. Either Moe will compensate Curly or Curly will compensate Moe because the alternative, renting separate apartments, leaves each worse off.
Lashondra is the owner/operator of an interior design firm. Last year she earned $400,000 in total revenue. Her explicit costs were $200,000 (assume that this amount represents the total opportunity cost of these resources). During the year she received offers to work for other design firms. One offer would have paid her $120,000 per year and the other would have paid her $130,000 per year. Lashondra's economic profit is equal to
A. $70,000. B. $200,000. C. $0. D. -$50,000.
The non-exclusion principle means
A) no one can be excluded from the benefits of a public good, even if the person does not pay for it. B) no one can be excluded from the benefits of a private good, even if only one person pays for it. C) no one who pays for a public good can be excluded from receiving the benefits of a public good. D) people who do not pay for a public good can be excluded from receiving its benefits.
You value your favorite shirt at $110. Someone else values it at $150, and that person is willing to pay you $120 for your shirt. Would selling your shirt to this person for $120 be Pareto efficient?
A. Yes, because both of you are better off as a result of the trade. B. No, because you did not receive the maximum amount the other person would have been willing to pay for the shirt. C. No, the person paid you $120 for the shirt so his net benefit was $30, while your net benefit was $10. For this change to be Pareto efficient, each of you should have the same net benefit. D. Yes, because even though you gain from the trade and he loses, there is the potential for you to compensate him for his loss.