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Use the following statements to answer the question: I. Consider the problem of negotiating the price...

Use the following statements to answer the question: I. Consider the problem of negotiating the price of a rug that costs $200 to make. If there are two buyers (one with a maximum willingness-to-pay of $200 and one with a maximum willingness-to-pay of $250), then the situation is a noncooperative game. II. The likely outcome from the game described in statement I is that the second buyer will bid a price slightly above $200 (e.g., $201) to win the rug.               

A.

I and II are true.
B.

I and II are false.
C.

II is true and I is false.
D.

I is true and II is false.
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Answer #1

Both statements are true. The game is quite like auction and can be considered as noncooprative game, because it might not be possible to negotiate with other participants and enter into a form of bundling agreement.2nd buyer will definitely win the rug by bidding a price that is higher than $200 , so that buyer 1 is no longer able to buy that rug with a price that is higher than his maximum willingness to pay. In that case buyer 2 has to pay that bidding amount to win the rug .

Answer- option I and II are true.

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