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- T/F Opportunity cost refers to the cost of next best foregone.True/ false Opportunity cost refers to the cost of next best foregone.Reactors `R’ Us operates a nuclear power plant in Potsdam.In the event of reactor failure, there would be major damages to the North Country. The company can reduce the probability of failure through proper maintenance of the facility. The marginal cost of maintenance is increasing in the amount of maintenance done (and thus decreasing in the probability of an accident). We can write this marginal cost curve as MAC=2-10p (where 0<p<1, and represents the probability of a failure over a 50 year period). The marginal expected damages are an increasing function of the probability of an accident so that MD=2.2+10p. Provide a graph or graphs to illustrate your analysis/answers to the following questions. A. What is the efficient probability of reactor failure? B. If “Reactors ‘R’ Us” thinks that, in the event of reactor failure, they will NOT be found liable for damages, what probability of failure will they choose? C. If “Reactors ‘R’ Us” thinks that, in the…
- Examples of tradeoffs that have both monetary and non monetary cost____ emphasizes economies of scale and decreases risk.BPO Services is in the business of digitizing information from forms that are filled out by hand. In 2006, a big client gave BPO a distribution of the forms that it digitized in house last year, and BPO estimated how much it would cost to digitize each form. Form Type Mix of Forms Form Cost A 0.5 $3.00 B 0.5 $1.00 The expected cost of digitizing a form is . Suppose the client and BPO agree to a deal, whereby the client pays BPO to digitize forms. The price of each form processed is equal to the expected cost of the form that you calculated in the previous part of the problem. Suppose that after the agreement, the client sends only forms of type A. The expected digitization cost per form of the forms sent by the client is . This leads to an expected loss of per form for BPO. (Hint: Do not round your answers. Enter the loss as a positive number.)
- Compare and contrast decision making in general and decision making when there is a resource constraintWhen the payoffs are profits, the maximin strategy selects the alternative or act with the maximum gain. True or False True FalseColumbus grocery store faces demand for freshly squeezed pomegranate juice. The daily demand for freshly squeezed juice ranges from 10 to 20 gallons. The grocery store offers the juice in a special 1 gallon bottle. Each gallon costs $8 to make and is sold for $15. Any juice that is not sold by the end of the day can all be sold to a local food processor for $5. Compute the decision rule ratio using the marginal analysis (rounding it to two decimal places). O 0.53 O 0.47 O 0.50 O 0.30 O0.70
- Julia and Julia is a small, owner-operated bakery. The owner of Julia & Julia is considering two alternative investments, X and Y. There are four possible outcomes for each (1,2,3 and 4 for Investment X and A, B, C, D for Investment Y). Investment X Investment Y Outcome Payoff Payoff Probability 0.2 Outcome Probability 1 A 0.1 2 2 0.2 B 30 0.2 12 0.4 1 0.5 4 14 0.2 14 0.2 (a) To one decimal place (e.g. 3.5), what are the expected values of Investment X and of Investment Y? The expected value of X is The expected value of Y is Say the owner's utility function is given by U (Z) = VZ where U is the utility and Z is X or Y. (b) Is the owner risk averse? O Yes O No (c)Which investment will the owner choose? OInvestment X Investment YA risk-neutral firm produces chemical products, and its objective is to maximize expected profit. There is a risk that there will be an accident during the production process, and dangerous chemical products will be released into the ocean, polluting the water. To reduce the risk of an accident, the firm can choose Low or High investment in safety. Low Investment in Safety_ Cost for firm= $0 Probability of an Accident = 80% Probability of No Accident =20% High Investment in Safety Cost for firm= $150 Probability of an Accident = 20% Probability of No Accident = 80% The Government wants to reduce the risk of an accident, but the Government cannot observe the fir m's investment in safety. Therefore there is a moral hazard problem. However, the Government can observe whether an accident occurred or not. So the government decides to create a fine (penalty): if an accident occurs, the firm must pay a fine F to the Government. If an accident does not occurs, then the firm does not have to…in every Nash equilibrium, the strategy of every player is a best response to the strategies chosen by the other players. (a) True. (b) False.