Risk-neutral Icarus Airlines must commit now to leasing 1, 2, or 3 new airplanes. It knows with certainty that on the basis of business travel alone, it will need at least 1 airplane. The marketing division says that there is a 50% chance that tourism will be big enough for a second plane only. Otherwise, tourism will be big enough for a third plane. This, plus revenue information, yields the following table: Planes Tourism Revenue Expected Leased Light Heavy Profit 2 $90 million $60 million $75 million 3 $10 million $110 million $60 million Without additional information, Icarus Airlines would Select one: A. lease 2 airplanes in order to guarantee it avoids the worst outcome, $10 million B. lease 3 airplanes because $110 million is greater than $90 million C. lease 2 airplanes because $75 million is greater than $60 million. D. lease 3 airplanes because $60 million is greater than $10 million.
Risk-neutral Icarus Airlines must commit now to leasing 1, 2, or 3 new airplanes. It knows with certainty that on the basis of business travel alone, it will need at least 1 airplane. The marketing division says that there is a 50% chance that tourism will be big enough for a second plane only. Otherwise, tourism will be big enough for a third plane. This, plus revenue information, yields the following table:
Planes Tourism Revenue Expected
Leased Light Heavy Profit
2 $90 million $60 million $75 million
3 $10 million $110 million $60 million
Without additional information, Icarus Airlines would
Select one:
A.
lease 2 airplanes in order to guarantee it avoids the worst outcome, $10 million
B.
lease 3 airplanes because $110 million is greater than $90 million
C.
lease 2 airplanes because $75 million is greater than $60 million.
D.
lease 3 airplanes because $60 million is greater than $10 million.
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