Task 1 (30%): 

Consider an auction market where there are two items, a and b, to sell to two bidders, Bidder 1 and Bidder 2. The valuation of these bidders is shown as follows:

∅ {a} {b} {a,b}

Bidder 1 0 8 6 12

Bidder 2 0 5 7 11

Assume that the auction is run under dynamic auction procedure. Let (pa, pb) be a price vector where pa represents the price of item a and pb the price of item b.

Question 1: At price p=(2, 3), what is the utility of each bidder for each bundle of items?

Question 2: At price p=(2, 3), what is the demand correspondence of each bidder?

Question 3: is the equilibrium price vector and equilibrium allocation that the dynamic auction procedure leads to? Fill in the details of billing procedure in the following table.

Round Price vector Bidder 1 Bidder 2Task2 (70%): 

Write a survey about Google's Ad auction (no more than four A4 pages). Your survey should include:

1. A brief history of ad auction.

2. The basic mechanism of ad auction.

3. The extension of ad auction.

4. An introduction of the services provided by Adsense.

5. Conclusion and references