First Fiddler's Bank Has Foreclosed on a Home Mortgage and Is

First Fiddler's Bank has foreclosed on a home mortgage and is selling the house at auction.There are three bidders for the house, Ernie, Minnie, and Betsy.First Fiddler's does not know the willingness to pay of these three bidders for the house, but on the basis of its previous experience, the bank believes that each of these bidders has a probability of 1/3 of valuing it at $700,000, a probability of 1/3 of valuing at $400,000, and a probability of 1/3 of valuing it at $300,000.First Fiddler's believes that these probabilities are independent among buyers.If First Fiddler's sells the house by means of a second-bidder, sealed-bid auction (Vickrey auction) , what will be the bank's expected revenue from the sale? (Choose the closest option.)

A) $400,000
B) $451,852
C) $466,667
D) $700,000
E) $300,000

Correct Answer:

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