A Seller Knows That There Are Two Bidders for the Object

A seller knows that there are two bidders for the object he is selling. He believes that with probability , one has a buyer value of $5 and the other has a buyer value of $12 and, with probability , one has a buyer value of $10 and the other has a buyer value of $30. He knows that bidders will want to buy the object so long as they can get it for their buyer value or less. He sells it in an English auction with a reserve price which he must set before the auction starts. To maximize his expected profits, he should set the reserve price at

A) $30.
B) $5.
C) $12.
D) $10.
E) $20.

Correct Answer:

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