he probability that it will rain on any given day is 0.20, and the probability is independent from day to day. You are trying to decide whether or not to make a tee time tomorrow to play golf. This requires a commitment on your part of turning down, say, movie tickets in favor of playing golf. If you accept the tickets, you also make the Commitment not to go golfing. There is a weather forecast that signals whether it will rain tomorrow or not. There s a 0.80 probability that it rains when there is a "rainy" forecast and a 0.125 probability of rain when there is a "sunny" forecast. The overall probability of getting a "rainy" forecast is 0.111. Assume you are risk neutral. You place the following monetary values on the potential outcomes:

he probability that it will rain on any given day is 0.20, and the probability is independent from day to day. You are trying to decide whether or not to make a tee time tomorrow to play golf. This requires a commitment on your part of turning down, say, movie tickets in favor of playing golf. If you accept the tickets, you also make the Commitment not to go golfing. There is a weather forecast that signals whether it will rain tomorrow or not. There s a 0.80 probability that it rains when there is a "rainy" forecast and a 0.125 probability of rain when there is a "sunny" forecast. The overall probability of getting a "rainy" forecast is 0.111. Assume you are risk neutral. You place the following monetary values on the potential outcomes:

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

Deborah is at the casino and is considering playing Roulette. In Roulette, a ball drops into one of 36 slots on a spinning wheel. 17 of the slots are red, 17 are black, and 2 are green. Each slot is equally likely and occurs with probability 1/36. Deborah bets $1.00 on black. If the ball drops into a black slot she receives $2.00 and if it drops into a red or green slot, she receives nothing. a) The expected value of Deborah’s bet (after subtracting the $1.00 she bet) is $________________ b) Given that Deborah makes this bet, is she risk adverse, risk neutral, or risk loving?
If the farmer uses pesticides he expects a crop of 60,000 bushels; if he does not use pesticides he expects a crop of 50,000 bushels. The cost of pesticides is $30,000 and the other costs associated with planting and harvesting the crop total $450,000. The price of corn at harvest time will either be $9.00 with probability of 0.50 or it will be $11.00 with probability 0.50, so if the farmer decides to sell the crop at harvest, the expected price per bushel that he will receive is $10.00. If the farmer does not use pesticides and decides to sell the crop at harvest, what is his expected profit? a. $180,000.00 b. $100,000.00 c. $50,000.00 d. $20,000.00 If the farmer uses pesticides he expects a crop of 60,000 bushels; if he does not use pesticides he expects a crop of 50,000 bushels. The cost of pesticides is $30,000 and the other costs associated with planting and harvesting the crop total $450,000. The price of corn at harvest time will either…
Halsen, a marketing manager at Business X, has determined four possible strategies (X1, X2, X3, and X4) for promoting the Product X in London. She also knows that major competitor Product Y has 4 competitive actions (Y1, Y2, Y3 and Y4) it’s using to promote its product in London, too. Ms. Halsen has no previous knowledge that would allow her to determine probabilities of success of any of the four strategies. She formulates the matrix below to show the various Business X strategies and the resulting profit, depending on the competitive action used by Business Y. Determine which strategy Ms. Halsen should select using. Maximax, maximin or minimax regret? Business X Strategy Business Y Strategy Y1 Y2 Y3 Y4 X1 25 57 21 26 X2 17 29 20 34 X3 47 31 32 37 X4 35 27 30 35
You consider buying a lot on which you will build a small apartment complex. The asking price for the lot is $2,000,000 and the estimated cost to build the apartment complex is $5,000,000 (construction should take one year). One year from the date you intend to purchase the lot the city is going to make an important decision regarding the use of the land just across from your lot. You believe that there is a 35% chance that the decision would be favorable to you and a 65% chance that it would be unfavorable. In case of a favorable or unfavorable outcome your complex should generate an NOI of $400,000 or $300,000 respectively. For simplicity, you may assume that at any time you can sell your complex for a 5% CAP and your required rate of return is 8%. a. Calculate the value of the lot using the traditional approach.b. Calculate the value of the lot using the real option approach.c. Should you buy the lot?d. In case that you decided to buy the lot, should you build the apartment complex…
2
Insurance: An insurance company sells a 1-year term life insurance policy to an 84-year-old man. The man pays a premium of $1600. If he dies within 1 year, the company will pay $33,000 to his beneficiary. According to the U.S. Centers for Disease Control and Prevention, the probability that an 84-year-old man will be alive 1 year later is 0.9537, Let X be the profit made by the insurance company. do Part: 0/2 Part 1 of 2 (a) Find the probability distribution. The probability distribution is 1600 P (x)
In a tight real estate market, the probability that a buyer's offer will be accepted is 0.50 if she bids more than 15 thousand above the asking price. The probability of acceptance drops to 0.20 if she bids below this amount. Overall, sixty percent of offers are more than 15 thousand above the asking price. The probability that a randomly selected offer will be accepted by the seller is closest or equal to: 0.15 0.38 0.20 0.32 O 0.18
An investor with initial wealth W is given the opportunity to invest in a start-up (1) company. If the company does well, the investor will make a 200% profit in her investment, but if the company fails, the investor will lose all her investment. That is, if the investor invests X, she will get back 3x if the company succeeds and nothing if the company fails. The company will fail with probability 1/2 and will succeed with probability 1/2. The investor is risk-averse and has utility function u(x) wealth W should she invest in this company? Vx. What fraction of her initial
Monty Burns, the owner of the Springfield Nuclear Power Plant, owns many real estate properties. His last acquisition is a house worth €1,000, 000. Monty Burns considers purchasing an insurance for this new property. With probability 0.1, he will face damage reducing his property' value to €640, 000 while with probability 0.9 his property will not be damaged and thus will remain at its current value. Burns' vNM utility for wealth is given by u°(w) = Vw. Miss b runs an insurance company in Springfield and is willing to insure Monty Burns. The insurance contract says the following: if Burns' new property is damaged, she will pay an amount q (the coverage) to Monty Burns in exchange for a payment r (the premium) that is due independently from the occurence of the damage. Miss b's vNM utility over her income y is u°(y) = y. 1. Considering that Monty Burns actually buys insurance from Miss b, express the wealth of Monty Burns and the income of Miss b as functions of q and r. You have of…
Your production line has an automatic scanner to detect defects. In recent production, 2% of items have been defective. Given that an item is defective, the scanner has a 90% chance of identifying it as defective. Of the nondirective items, the scanner has a 90% chance of identifying it correctly as nondirective. Given that the scanner identifies a part as defective, find the conditional probability that the part is truly defective.
A salesperson is trying to sell cars. The number of cars that she will sell depends on her effort "e" and her luck. Given her effort e, with probability 4e she is able to sell four cars, and with probability (1 - 4e) she is able to sell only one car. Her personal cost of effort is 100e². The dealership pays her a bonus b for each car sold. The salesperson is risk-neutral, and wants to maximize her expected utility, which is her expected income minus her effort cost. a) Given the bonus b, the salesperson's best response function is b) Suppose the dealership pays b = 2. Then the expected number of cars sold will be E(Q)=
Please do not give solution in image format thanku Two Manufacturers supply food to a large cafeteria. Manufacturer A supplies 40% of the soup served in the cafeteria, while Manufacturer B supplies 60% of the soup that is served. 3% of the soup cans provided by Manufacturer A are found to be dented, while 1% of the cans provided by Manufacturer B are found to be dented. Given that a can of soup is dented, find the probability that it came from Manufacturer B.