Monetary Amount of Fair Shares - Essay Example

Q4, How much money is owed to each of the two people who do not win the collection of frogs? 

Soln.   We calculate the amount that Abraham will have to pay to society as the value that he put on the items is greater than his fair share.

         12000-4000= $8000 from this amount we will subtract the other two bidder’s fair share amount.

         8000-2000-3000= 3000 there is still a surplus of $3000 left which will be divided equally among the three bidders.

Now the total money owed to each of the two people who do not win: Fair Share+Surplus money

Bobby: 2000+1000=3000

Charlene: 3000+1000=4000

Q5, In your opinion how Fair is the process described above? 

Soln. This process can be said to be a fair one as it gives each bidder an equal chance of winning the items that they want to be based on their own valuations of it. Now, if someone tries to intentionally bid an amount that is far greater than the value of the collection to just beat the others then the winner also has to pay an amount which is the difference between the valuation he or she puts and the fair share of the item which compensates the other bidders and this way the other bidders also do not feel hard done by.

Q6, Now pretend for a moment that you like frogs; we will insert you into the situation under special circumstances. Despite (or perhaps because of) your love of all things amphibious, you currently lack the funds to pay each of the others their probable fair share. You will not receive the collection, but wish to receive as much money as possible. You have no knowledge of the amounts in each of the sealed bids, but strongly suspect that Abraham will bid between $10,000.00 and $12,000.00.

Given that you cannot afford to win the process, describe how you will go about deciding what to put down for your own estimate of the value of the collection.

Soln.  As I know that I cannot pay the others their probable fair share and so I won’t be able to win the collection and I also believe that Abraham will bid between $10000 to $12000 then I would think about putting a value that is just below the one that Abraham will put which in this case would be $9999.

The reason for putting this value is that it will give me the highest possible fair share without having a chance of winning the items as the fair share that I will get if Abraham bids $10000 and wins would be:

9999/4= $2499.75

Now supposing that Bobby and Charlene bid the same amounts as before their fair share would be :

Bobby: 6000/4= 1500     Charlene: 9000/4=2250

And Abraham’s fair share is 10000/4: 2500.

The amount that Abraham will pay to the society would be 10000-2500=7500

Out of 7500, the other bidder’s fair share would be deducted: 7500-2499.75-1500-2500= $1000.25

As $1000.25 is the surplus amount, it will be divided equally among the four bidders:

1000.25/4= $250.0625 will be received by each bidder.

And so the total amount that I will receive would be 2499.75+250.0625=$2749.8125. This is the highest amount that I can win considering that I cannot win the collection and Abraham’s bid will be between 10000 to 12000.