Decision Alternative Up S₁ Stable s2 Down S3 Investment A, d₁ Investment B, d₂ Investment C, d3 Probabilities $70,000 $45,000 $20,000 Profit Investment A, d Investment B, d₂ Investment C, d 100 70 0.95 Economic Conditions 45 Profit Decision Maker A 0.85 0.45 0.65 (a) Using the expected value approach, which decision is preferred? E(d₂) - $68 ✔ thousand E(d₂) = $56.25 thousand E(d₂) - $45 ✔ thousand The expected value approach recommends Investment A, d. ✔ 20 (b) For the lottery having a payoff of $100,000 with probability p and $0 with probability (1-p), two decision makers expressed the following indifference probabilities. Find the most preferred decision for each decision maker using the expected utility approach. Indifference Probability (p) 45 45 0.15 Decision Maker A 6.95 X 0.6 0.35 Decision Maker B 0.2 Expected Utilities 0 20 Calculate the expected utility for each of the decision alternatives for each of the decision makers. (Assign a utility of 10 to the payoff of $100,000 and a utility of 0 to the payoff of $0.) 45 0.20 Enter a number. Decision Maker B

Decision Alternative Up S₁ Stable s2 Down S3 Investment A, d₁ Investment B, d₂ Investment C, d3 Probabilities $70,000 $45,000 $20,000 Profit Investment A, d Investment B, d₂ Investment C, d 100 70 0.95 Economic Conditions 45 Profit Decision Maker A 0.85 0.45 0.65 (a) Using the expected value approach, which decision is preferred? E(d₂) - $68 ✔ thousand E(d₂) = $56.25 thousand E(d₂) - $45 ✔ thousand The expected value approach recommends Investment A, d. ✔ 20 (b) For the lottery having a payoff of $100,000 with probability p and $0 with probability (1-p), two decision makers expressed the following indifference probabilities. Find the most preferred decision for each decision maker using the expected utility approach. Indifference Probability (p) 45 45 0.15 Decision Maker A 6.95 X 0.6 0.35 Decision Maker B 0.2 Expected Utilities 0 20 Calculate the expected utility for each of the decision alternatives for each of the decision makers. (Assign a utility of 10 to the payoff of $100,000 and a utility of 0 to the payoff of $0.) 45 0.20 Enter a number. Decision Maker B

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Answer "What is the steady-state level of output"
Answer for (b) & (c) Please Airtight Manufacturing produces plastic cases that utility companies buy to protect electronic components on utility poles from weather damage. (a) The protective case currently used by utility companies has a 0.045 probability of cracking or breaking in any given year. When a protective case cracks or breaks, the utility company incurs a $800 expense to replace the case. What is the expected value of the utility company’s repair costs per protective case? Show your work. (b) Airtight has recently developed a stronger material for its protective case. The use of this stronger material reduces the case’s probability of cracking or breaking, and serves as a differentiating factor for estimating this product’s VTC. Use the product-needs matrix described in the course to classify this differentiating factor. What type of product characteristic is it? What type of customer need does it satisfy? Justify your answers. (c) If this stronger material enables…
3
Question 74.Full explain this question and text typing work only We should answer our question within 2 hours takes more time then we will reduce Rating Dont ignore this line
Solve (d) and (e) please.
Do not use Ai
Don’t use excel Show work
Determine the two best decision alternatives by a conservative decision maker. Decision dl d2 d3 d4 d1 and d4 -350 d2 and d3 d3 and d4 sl States of Nature 900 d1 and d2 d1 and d3 500 700 750 -380 210 -360 $3 1100 600 -370 700
A manager has compiled estimated costs for various capacity alternatives but is reluctant to assign probabilities to the states of nature. Assuming the values in the payoff table are estimated costs and the goal is to minimize expected costs. STATE OF NATURE A $ Alternative B с # 1 multiple choice Alternative A Alternative B Alternative C None 20 120 100 * #2 140 80 40 *Cost in $ thousands. a. Is there any alternative that would never be appropriate in terms of minimizing expected cost? b. For what range of P(2) would alternative A be the best choice if the goal is to minimize expected cost? c. For what range of P (1) would alternative A be the best choice if the goal is to minimize expected cost?
2. Airtight Manufacturing produces plastic cases that utility companies buy to protect electronic components on utility poles from weather damage. (a) The protective case currently used by utility companies has a 0.045 probability of cracking or breaking in any given year. When a protective case cracks or breaks, the utility company incurs a $800 expense to replace the case. What is the expected value of the utility company’s repair costs per protective case? Show your work. (b) Airtight has recently developed a stronger material for its protective case. The use of this stronger material reduces the case’s probability of cracking or breaking and serves as a differentiating factor for estimating this product’s VTC. Use the product-needs matrix described in the course to classify this differentiating factor. What type of product characteristic is it? What type of customer need does it satisfy? Justify your answers. (c) If this stronger material enables Airtight’s new protective…
a) There is possibility of risk occurrence even when risk reduction techniques are n place. How will deal with this scenario and how will you justify cost-effectiveness of a risk reduction technique? b) Identify the schedules that are used on daily basis for the control and management of the project.
Answer the problems on the basis of the above graph and the most likely estimates given as follows: If the profit (R−E) is decreased by 5%, this projectis not profitable. (a) True (b) False.