5. Three decision makers have assessed utilities for the following decision problem (payoffin dollars):State of NatureDecision Alternative55d₁d25280$1$2$350-20100-100The indifference probabilities are as follows:Indifference Probability (p)☐PayoffDecision Maker A1001.00800.95500.90200.70-200.50-1000.00Decision Maker B1.000.700.600.450.250.00a.Plot the utility function for money for each decision maker.Decision Maker C1.000.900.750.600.400.00b. Classify each decision maker as a risk avoider, a risk taker, or risk neutral.C.For the payoff of 20, what is the premium that the risk avoider will pay to avoid risk?What is the premium that the risk taker will pay to have the opportunity of the highpayoff?

(a) Indifference Probabilities The utility function U(x)U(x)U(x) can be derived using the…

Answered: 5. Three decision makers have assessed…

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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5. The manager of a fast-food restaurant featuring hamburgers is adding salads to the menu. If they choose to include a salad bar (i.e., the MAKE option), it will cost $14,000 in annual fixed costs for the leased equipment and added employee, and $1 per salad variable cost. If they choose to have pre-made salads (i.e., the BUY option), it will cost $3 per salad. The manager expects to sell 7,500 salads per year. What is the make or buy quantity (i.e., the breakeven point between making vs. buying)?
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In contract negotiations between a local government agency and its workers, it is estimated that there is a 50% chance that an agreement will be reached on the salaries of the workers. It is estimated that there is a 70% chance that there will be an agreement on the insurance benefits. There is a 20% chance that no agreement will be reached on either issue. Are the agreement on salaries (S) and the agreement on insurance (I) independent events? O not independent because P(S) P(I) # P(S and I) O independent because P(S) P(I) = P(S and I) %3D Oindependent because P(S) P(I) P(S and !)
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Letz Products has two decisions to make, with the second decision dependent on the outcomeof the first. The company intends to build a new plant. Letz has the option of conducting itsown marketing research survey for which the results will either be positive or negative. Theinformation from this survey could help it decide whether to build a large plant, to build a smallplant, or not to build at all. Letz recognizes that although such a survey will not provide it withperfect information, it may be extremely helpful. Using the image explain to your client (Letz) what the above decision tree shows. You arerequired to show all working.
An electronics factory operates on four production lines: laptops, mobiles, desktop computers, smart boards, and there were three cases of demand (weak, medium, and high), and the matrix of returns was as follows: Laptops Mobiles Risk Desktop Computers Smart Boards High 40 45 35 30 Economic state Medium 25 15 30 20 1. The problem presented above is decision-making under Certainty Uncertainty Weak 10 5 -10 -5 Save All Answers Save and Submit
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