5. Suppose you have two job offers. Big Inc. will pay you $75,000. Small Ltd. pays $40,000 with profit sharing. You believe there are three possible states of the world. There is a 30% chance demand will be low and no profits will be shared. There is a 30% chance demand will be high and $80,000 will be shared. Otherwise demand will be medium and $40,000 will be shared. You are risk neutral and that other than pay the two jobs are the same to you. a) Draw the normal form game against nature. b) Which job is better? c) Suppose you can acquire information that will tell you for certain whether or not demand will be low. If demand is not low, it does not tell you whether it is medium or high. What is the value of such information to you?

5. Suppose you have two job offers. Big Inc. will pay you $75,000. Small Ltd. pays $40,000 with profit sharing. You believe there are three possible states of the world. There is a 30% chance demand will be low and no profits will be shared. There is a 30% chance demand will be high and $80,000 will be shared. Otherwise demand will be medium and $40,000 will be shared. You are risk neutral and that other than pay the two jobs are the same to you. a) Draw the normal form game against nature. b) Which job is better? c) Suppose you can acquire information that will tell you for certain whether or not demand will be low. If demand is not low, it does not tell you whether it is medium or high. What is the value of such information to you?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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