1.Suppose there
are nine sellers and nine buyers, each willing to buy or sell one unit of a
good,...

Question

1.Suppose there 
are nine sellers and nine buyers, each willing to buy or sell one unit of a 
good, with values ($60, $50, $45, $40, $35, $30, $25, $20, $15). 
Suppose there is a single market maker in this market. What 
is the optimal bid-ask spread?a.$15 bid; $60 
ask
b.$20 bid; $50 
ask
c.$25 bid; $45 
ask
d.$30 bid; $40 
ask2.Suppose there 
are nine sellers and nine buyers, each willing to buy or sell one unit of a 
good, with values ($60, $50, $45, $40, $35, $30, $25, $20, $15). 
Suppose there is competition among several market makers, and the spread 
has been forced down to $10. H0w many goods are traded?
a.Five
b.Four
c.Three
d.Two

David · Accepted Answer

1. 
a. $15 bid; $60 ask 
The optimal bid-ask spread is one where the buyer offers the lowest price and the seller asks 
for the highest price. Thus, the spread is for $15 bid and $60 ask. It is the highest price which 
the buyer is willing to offer for the good. Also,

1.Suppose there are nine sellers and nine buyers, each willing to buy or sell one unit of a good, with values ($60, $50, $45, $40, $35, $30, $25, $20, $15). Suppose there is a single market maker in...

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