Read
the following scenarios and complete the corresponding questions. Please
remember to answer in complete and grammatically correct sentences. I am looking for your thought process in the
answers to the questions, so be complete in your answers and use the
opportunity to clearly demonstrate your newly acquired knowledge.
Scenario 1 (length: as needed) Show your
calculations
Suppose
the hotel in the lecture example raised its price from $30 to $30.50. With the
new price, the hotel expects 96 guests to arrive 5% of the time, 97 guests 10%
of the time, 98 guests 20% of the time, 99 guests 30% of the time, 100 guests
25% of the time and 101 guests 10% of the time. The variable costs per occupied
room and overbooking costs are the same as in the lecture.
1.
Calculate the expected revenue, expected variable costs and expected costs from
overbooking.
2.
Using marginal analysis, should the hotel raise its price? Explain your answer.
Scenario 2 (length: as needed)
You
are considering auctioning a Leonardo Da Vinci original sketch. You entice four
bidders to come to your auction. The bidders’ valuations of the sketch in
decreasing order are $3.0, $2.2, $2.0, and $1.5 (in millions).
- If you used a second-price
sealed bid auction, who would win and what would the winning price be?
- If you used a first-price
sealed bid auction and the optimal strategy for the participants was to
shade their bid by 20% and the participants used this strategy, who would win
and what would the winning price be?
- Which auction should
you choose to maximize your profit?
- How would your answers
change to the above questions if the valuations of the sketch are $3.0, $2.7,
$2.0 and $1.5?
Scenario 3 (length: 0.5 page)
In the auction described above, suppose that you could entice additional bidders to attend
your auction. However, none of the new bidders would have a valuation greater
than $3.0 million. Despite that fact, you expect the amount that the winning
bidder must pay to increase regardless of the type of auction you use (first-
or second-price sealed bid). For each auction, explain why you would expect
the auction price to increase. If you want, you may assume the valuations
of the original four participants are $3.0, $2.2, $2.0 and $1.5 million.
Writing Requirements
•1-inch
margins
•Double
spaced
•12-point
Times New Roman font
Grading
and Assessment
This
activity will be graded based on thoroughness and correctness of responses. For
the numerical and graphical questions, to achieve full marks you must also show
your work.
1.
Master the basic techniques of microeconomic analysis such as demand, supply
and equilibrium; production and cost theory; and market structure and pricing.
2.
Apply economic reasoning to understand and improve managerial decision-making
and grasp the analytical foundations underlying a firm’s competitive strategy.
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