When the Utility Function for a Risk-Neutral Decision Maker Is
When the utility function for a risk-neutral decision maker is graphed (with monetary value on the horizontal axis and utility on the vertical axis),the function appears as a(n) A)convex curve. B)concave curve. C)'S' curve. D)straight line.
East West Distributing is in the process of trying to determine where it should schedule next year's production of a popular line of kitchen utensils that it distributes.Manufacturers in four different countries have submitted bids to East West.However,a pending trade bill in Congress will greatly affect the cost to East West due to proposed tariffs,favorable trading status,etc.After careful analysis,East West has determined the following cost breakdown for the four manufacturers (in $1000s)based on whether or not the trade bill passes: a.If East West estimates that there is a 40% chance of the bill passing,which country should it choose for manufacturing? b.Over what range of values for the "bill passing" will the solution in part (a)remain optimal?
Super Cola is also considering the introduction of a root beer drink.The company thinks the probability that the product will be a success is 0.6.The payoff table is as follows: The company has a choice of two research firms to obtain information for this product.Stanton Marketing has market indicators I1 and I2 for which P(I1 | s1)= 0.7 and P(I1 | s2)= 0.4.New World Marketing has indicators J1 and J2 for which P(J1 | s1)= 0.6 and P(J1 | s2)= 0.3. a. What is the optimal decision if neither firm is used? Over what probability of success range is this decision optimal? b.What is the EVPI? c.Find the EVSIs and efficiencies for Stanton and New World. d.If both firms charge $5,000,which firm should be hired? e. If Stanton charges $10,000 and New World charges $4000,which firm should Super Cola hire?
Dollar Department Stores has just acquired the chain of Wenthrope and Sons Custom Jewelers.Dollar has received an offer from Harris Diamonds to purchase the Wenthrope store on Grove Street for $120,000.Dollar has determined probability estimates of the store's future profitability,based on economic outcomes,as: P($80,000)= 0.2,P($100,000)= 0.3,P($120,000)= 0.1,and P($140,000)= 0.4. a.Should Dollar sell the store on Grove Street? b.What is the EVPI? c.Dollar can have an economic forecast performed,costing $10,000,that produces indicators I1 and I2,for which P(I1 | 80,000)= 0.1; P(I1 | 100,000)= 0.2; P(I1 | 120,000)= 0.6; P(I1 | 140,000)= 0.3.Should Dollar purchase the forecast?