Using the risking-seeking utility function compute and identify the optimal decision option for developing the new food processing. Payoff ($M) Utility A Utility B Utility C -12 0 0 0 -7 0.65 0.19 0.03 -3 0.8 0.33 0.06 0 0.85 0.44 0.15 6 0.94 0.67 0.2 10 0.97 0.81 0.35 15 1 1 1
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Question 2: Using the risking-seeking utility function compute and identify the optimal decision option for developing the new food processing.
|
Payoff ($M) |
Utility A |
Utility B |
Utility C |
|
-12 |
0 |
0 |
0 |
|
-7 |
0.65 |
0.19 |
0.03 |
|
-3 |
0.8 |
0.33 |
0.06 |
|
0 |
0.85 |
0.44 |
0.15 |
|
6 |
0.94 |
0.67 |
0.2 |
|
10 |
0.97 |
0.81 |
0.35 |
|
15 |
1 |
1 |
1 |
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- 2 Consider the two investments listed below with possible outcomes and probabilities: INVESTMENT (in $1000) SAFE RISKY INVESTMENT AMOUNTⓇ 40+ 40+ GOOD SCENARIO OUTCOME 45+ 80+ AVERAGE+ SCENARIO PROB OUTCOME 0.40* 0.40€ 42+ 45+ BAD+ SCENARIO PROB OUTCOME PROB 0.20 35+ 0.20 10+ 0.40€ 0.40+ b) a) Suppose I have utility function U(*) = (x)2. What is the expected utility from each investment? Which investment will I choose, if any? Show and explain your work and provide the intuition. c) What is the value of the risk premium for the SAFE investment? Show and explain your work and provide the intuition. d) What is the value of the risk premium for the RISKY investment? Show and explain your work and provide the intuition.< +Creative Homework!Shorr Project Assume that you area marketing consultant for one of the clients in ilem14.16. You believe that the business would benefitfrom nontraditional marketing. Develop seve<al ideasfor social-media tactics that you feel would be successful for the client1 Consider the two investments listed below with possible outcomes and probabilities: INVESTMENT (in $1000) P SAFE RISKY INVESTMENT AMOUNT 40+ 40+ GOOD SCENARIO OUTCOME 45+ 80+ AVERAGE+ SCENARIO PROB+ OUTCOME 0.40+ 0.40 42+ 45 BAD+ SCENARIO PROB OUTCOME PROB 0.20 35+ 0.20 10 0.40€ 0.40 a) What are the expected payoffs (E(x)) and standard deviations for each investment? b) Suppose I have utility function U(*) = √(x). What is the expected utility from each investment? c) Which investment will I choose, if any? Show and explain your work and provide the intuition.< d) What is the value of the risk premium for the SAFE investment? Show and explain your work and provide the intuition. e) What is the value of the risk premium for the RISKY investment? Show and explain your work and provide the intuition.< 43 A ✔ →
- PROBLEM: Consider the 1ONB furniture decision tree. It is impossible to evaluate immediately act without first considering all later decision that result from this choice. Evaluation must be made in reverse of their natural sequence. Look for the value of the following to determine the correct decision. What is the Final Decision a Test Market Favorable b Test Market Unfavorable Do not Test Market How much is the final PayoffQuestion No. 6 For the table given below. Calculate TC, AFC, AvC and MC and show diagrammatically. L TFC (S) TVC(S) 19.53 1 200 50 38.16 2 200 100 55.90 3 200 150 72.80 4 200 200 104.17 6 200 300 132.50 8 200 400 157.99 10 200 500 191.36 13 200 650 219.44 16 200 800 249.61 20 200 1000 277.32 25 200 1250 295.76 30 200 15002 (a) Consider the St. Petersburg Paradox problem first discussed by Daniel Bernoulli in 1738. The game consists of tossing a coin. The player gets a payoff of 2" where n is the number of times the coin is tossed to get the first head. So, if the sequence of tosses yields TTTH, you get a payoff of 2¹; this payoff occurs with probability. Compute the expected value of playing this game. (b) Assume that utility U is a function of wealth X given by U = X5 and that X= $1,000,000. In this part of the question, assume that the game ends if the first head has not occurred after 40 tosses of the coin. In that case, the payoff is 240 and the game is over. What is the expected payout of this game? (c) What is the most you would pay to play the game if you require that your expected utility after playing the game must be equal to your utility before playing the game? Use the Goal Seek function (found in Data, What-If Analysis) in Excel.
- Describe a decision your company has madewhen facing uncertainty. Compute the expectedcosts and benefits of the decision. Offer adviceon how to proceed. Compute the profit conse-quences of the advice.Over the course of a customer’s lifetime of reading a weekly magazine priced at $4 per issue, what is the value of the magazine? Assume a customer acquisition cost of $12, a retention cost of $0, printing and distribution costs of $1, an annual retention rate of 77% and an annual discount rate of 2.6%. Assume that price and non-marketing variable costs remain constant over the customer’s lifetime of reading the magazine. Options: A) 10.05 B) 30.50 C) 73.49 D) 14.20 E) 0.02 F) 261.251. In a one-period model, the share price starts at $12 and in one year's time is either $24 or $6. Simple interest on USD is 20% per year. (a) Construct a replicating portfolio for a one year call option with strike K = $15. (b) Explain how The Law of One Price allows you to calculate the pre- mium of the call option. (c) Construct risk-neutral probabilities for the model for the share price and verify the risk-neutral value for the call option is the same as the value given by the replicating portfolio. |3D
- What are the potential risks associated with operating an online venture that sells imported coffee beans from Hondouras?Panther Acre Cattle Company - Chapter 7 Lab A typical farm or ranch problem is determining the optimum or profit-maximizing weight to sell fed cattle. Assume the feeder cattle are purchased at 600 pounds. The feed required and the weight gain is shown in the table below. Feed costs 7¢ per pound and feeder cattle prices are as follows: Weight Price per Pound 600-899 lbs 72¢ go to 3rd 900-1099 lbs decimal 1100 lbs or more 70¢ Point 67¢ Pay attention to the price changes when computing MVP. Input Output Feed Weight Selling Required Gain Weight Total Average Marginal Marginal Marginal Revenue Physical Physical Value Input (lbs) (lbs) (lbs) Product Product Product Cost 600 0 0 600 432 XXX XXX XXX XXX 500 50 So 650 468 0.10 0.083 1,100 145 as 745 536.40 0.132 6.158 1,700 235 aol 835 601.20 0.138 0.15 2,300 320 85 920 644 0.139 2,900 400 80 1,000 700 0.138 3,500 465 65 1,065 745, 50 0.133 4,100 525 60 1,125 753.75 0.128 4,700 575 SO 1,175 787.25 0.122 5,300 615 40 1,215 814.05 0.116 5,900 645…The goal of this activity is to help you better understand how the rational decision-making process applies in a realistic workplace scenario. First, hover over each term or phrase to read the description. Then, click and drag each term or phrase into the correct place in the rational decision-making process. Measuring performance Identify the problem or opportunity Consultants. Inclusive or exclusive Generate alternative. solutions Inclusive or exclusive Consultants Collecting data Evaluate alternatives and Implement and evaluate the solution chosen. select a solution Measuring performance Collecting data Reset 4