The business manager of Tolkien Transport wishes to analyse three strategic options available to the company (Cost-cutting; Diversification; Expansion) under four possible UK macroeconomic conditions: Recession, Low Growth, Medium Growth and High Growth. He has summarised available information in the following pay-off matrix (with impact on company profits in the next year in £000s). Cost-Cutting Diversification Expansion Macroeconomic Conditions Recession Low Growth Medium Growth 100 -120 -250 130 50 30 170 240 300 High Growth 200 300 500
The business manager of Tolkien Transport wishes to analyse three strategic options available to the company (Cost-cutting; Diversification; Expansion) under four possible UK macroeconomic conditions: Recession, Low Growth, Medium Growth and High Growth. He has summarised available information in the following pay-off matrix (with impact on company profits in the next year in £000s). Cost-Cutting Diversification Expansion Macroeconomic Conditions Recession Low Growth Medium Growth 100 -120 -250 130 50 30 170 240 300 High Growth 200 300 500
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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- The business manager decides to access the latest
macroeconomic predictions from the Bank of England. This provides him with the following probabilities: Recession (15%), Low Growth (30%), Medium Growth (35%), and High Growth (20%). Which option is preferred according to the expected monetary value (EMV) criterion? What attitude to risk does this represent?
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