Refer to the following: A firm is considering two projects, A and B, with the following probability distributions for profit. \[\begin{array} { c c c } \begin{array} { c } \text { Profit } \\ \text { (\$1,000s) } \end{array} & \begin{array} { c } \text { Praject } A \\ \text { Probability } ( \% ) \end{array} & \begin{array} { c } \text { Project B} \\ \text { Prabability (\%) } \end{array} \\ \hline \$ 20 & 10 & 10 \\ 40 & 15 & 15 \\ { 5 0 } & 50 & { 2 5 } \\ { 8 0 } & 15 & 40 \\ 100 & 10 & 10 \end{array}\] -A decision maker who is risk neutral would

A) choose project A. B) choose project B. C) not be able to make a decision. A) choose project A. B) choose project B. C) not be able to make a decision.

Refer to the following: A firm is considering two projects, A and B, with the following probability distributions for profit. \[\begin{array} { c c c } \begin{array} { c } \text { Profit } \\ \text { (\$1,000s) } \end{array} & \begin{array} { c } \text { Praject } A \\ \text { Probability } ( \% ) \end{array} & \begin{array} { c } \text { Project B} \\ \text { Prabability (\%) } \end{array} \\ \hline \$ 20 & 10 & 10 \\ 40 & 15 & 15 \\ { 5 0 } & 50 & { 2 5 } \\ { 8 0 } & 15 & 40 \\ 100 & 10 & 10 \end{array}\] -What is the variance of project B?

A) 10 B) 21 C) 165 D) 440 E) 515 A) 10 B) 21 C) 165 D) 440 E) 515

Refer to the following: The following table shows the expected value and variance for 5 projects a firm can undertake. \[\begin{array} { c c c } \text { Praiecl } & \text { Expeted Value } & \text { Variance } \\ \hline A & \$ 100 & \$ 124 \\ B & \$ 220 & \$ 110 \\ C & \$ 100 & \$ 138 \\ D & \$ 180 & \$ 138 \\ E & \$ 200 & \$ 124 \end{array}\] -Which of the following is (are) correct if the mean-variance rule is used for the decision?

A) Project C is preferable to A. B) Project E is preferable to B. C) Project D is preferable to C. D) all of the above E) none of the above A) Project C is preferable to A. B) Project E is preferable to B. C) Project D is preferable to C. D) all of the above E) none of the above

Use the following two probability distributions for sales of a firm to answer Questions : \[\begin{array} { c c c } \text { Sales } & \begin{array} { c } \text { Distribution1} \\ \text { Probability } \end{array} & \begin{array} { c } \text { Distribution2} \\ \text { Probability } \end{array} \\ \hline 2,000 & 0.05 & 0.05 \\ 3,000 & 0.20 & 0.15 \\ 4,000 & 0.50 & 0.20 \\ 5,000 & 0.20 & 0.35 \\ 6,000 & 0.05 & 0.25 \end{array}\] -Which distribution is more risky?

A) Distribution 1 has a higher variance than Distribution 2, so Distribution 1 is more risky. B) Distribution 2 has a higher variance than Distribution 1, so Distribution 2 is more risky. C) Distribution 2 has a larger standard deviation than Distribution 1, so Distribution 2 is more risky. D) both a and c E) non of the bove A) Distribution 1 has a higher variance than Distribution 2, so Distribution 1 is more risky. B) Distribution 2 has a higher variance than Distribution 1, so Distribution 2 is more risky. C) Distribution 2 has a larger standard deviation than Distribution 1, so Distribution 2 is more risky. D) both a and c E) non of the bove

Refer to the following: The following payoff matrix shows the various profit outcomes for 3 projects, A, B, and C, under 2 possible states of nature: the product price is $10 or the product price is $20. $\begin{array}{l} \text { Profit }\\ \begin{array}{l|c|c|} \hline \text { Project }&P=\$ 10 & P=\$ 20 \\ \hline A&20 & 80 \\ \hline B&40 & 60 \\ \hline C&-26 & 140 \\ \hline \end{array} \end{array}$ -Using the maximin rule, the decision maker would choose

A) A. B) B. C) C. D) impossible to tell from the information given A) A. B) B. C) C. D) impossible to tell from the information given

Refer to the following: The following payoff matrix shows the profit outcomes for three projects, A, B, and C, for each of two possible product prices. There is a 60% probability the price will be $10 and a 40% probability the price will be $20. $\begin{array}{l} \text { Profit }\\ \begin{array}{l|c|c|} \hline \text { Project }&P=\$ 10 & P=\$ 20 \\ \hline A&20 & 80 \\ \hline B&40 & 60 \\ \hline C&-26 & 140 \\ \hline \end{array} \end{array}$ -Using the maximum expected value rule a decision maker would choose

A) A. B) B. C) C. D) impossible to tell from the information A) A. B) B. C) C. D) impossible to tell from the information

Refer to the following: The following payoff matrix shows the various profit outcomes for 3 projects, A, B, and C, under 2 possible states of nature: the product price is $10 or the product price is $20. $\begin{array}{l} \text { Profit }\\ \begin{array}{l|c|c|} \hline \text { Project }&P=\$ 10 & P=\$ 20 \\ \hline A&20 & 80 \\ \hline B&40 & 60 \\ \hline C&-26 & 140 \\ \hline \end{array} \end{array}$ -Using the maximum expected value rule, the decision maker would choose

A) A. B) B. C) C. D) impossible to tell from the information A) A. B) B. C) C. D) impossible to tell from the information

A) all possible outcomes are known but probabilities can't be assigned to the outcomes. B) all possible outcomes are known and probabilities can be assigned to each. C) all possible outcomes are known but only objective probabilities can be assigned to each. D) future events can influence the payoffs but the decision maker has some control over their probabilities. E) c and d A) all possible outcomes are known but probabilities can't be assigned to the outcomes. B) all possible outcomes are known and probabilities can be assigned to each. C) all possible outcomes are known but only objective probabilities can be assigned to each. D) future events can influence the payoffs but the decision maker has some control over their probabilities. E) c and d

Refer to the following: The following payoff matrix shows the profit outcomes for three projects, A, B, and C, for each of two possible product prices. There is a 60% probability the price will be $10 and a 40% probability the price will be $20. $\begin{array}{l} \text { Profit }\\ \begin{array}{l|c|c|} \hline \text { Project }&P=\$ 10 & P=\$ 20 \\ \hline A&20 & 80 \\ \hline B&40 & 60 \\ \hline C&-26 & 140 \\ \hline \end{array} \end{array}$ -Using the mean variance rule a decision maker would choose

A) A. B) B. C) C. D) can't use this rule under these circumstances A) A. B) B. C) C. D) can't use this rule under these circumstances

Refer to the following probability distribution for profit \[\begin{array} { c c } \text { Prafit } & \text { Prabability } \\ \hline \$ 30 & 0.05 \\ 40 & 0.25 \\ 50 & 0.60 \\ 60 & 0.10 \end{array}\] -What is the variance of this distribution?

A) 48.75 B) 2,376 C) 525 D) 70 E) 11.875 A) 48.75 B) 2,376 C) 525 D) 70 E) 11.875

Exam 15: Decisions Under Risk and Uncertainty

Refer to the following: A firm is considering the decision of investing in new plants. It can choose no new plants, one new plant, or two new plants. The following table gives the profits for each choice under three states of the economy. The manager assigns the following probabilities to each state of the economy: the economy expands, 20%, the economy contracts, 40%, or the economy is unchanged 40%. $\text { The economy }$ expands (0.20) contracts (0.40) unchanged (0.40) no new plants \ 10 million -\ 2 million \ 3 million 1 new plant \ 20 million -\ 3 million \ 7 million 2 new plants \ 30 million -\ 6 million \ 5 million -Using the mean variance rules, which decision is correct?

(Multiple Choice)

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Question 41

In making decisions under risk

(Multiple Choice)

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Question 42

Refer to the following: A firm is considering two projects, A and B, with the following probability distributions for profit. Profit ( \1 ,000s) Praject A Probability (\%) Project B Prabability (\%) \ 20 10 10 40 15 15 50 50 25 80 15 40 100 10 10 -A decision maker who is risk neutral would

(Multiple Choice)

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Question 43

In the maximax strategy a manager choosing between two options will choose the option that

(Multiple Choice)

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Question 44

Refer to the following situation: A firm is making production plans for next quarter, but the manager does not know what the price of the product will be next month. She believes there is a 30 percent chance price will be $500 and a 70 percent chance price will be $750. The four possible profit outcomes are: Prod (toss) when pice is: \ 500 \ 750 Option A produce 1,000 unids -\ 12,000 \ 80,000 Oplion B produce 2,000 unids \ 20,000 \ 150,000 -Which option is chosen using the coefficient of variation rule?

(Multiple Choice)

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Question 45

Refer to the following: A firm is considering the decision of investing in new plants. The following is the profit payoff matrix under three conditions: it does not expand, it builds two new plants, or it builds one new plant. Three possible states of nature can exist--no change in the economy, the economy contracts and the economy grows. The firm has no idea of the probability of each state. $\text { The economy }$ expands contracts unchanged no new plants \ 20 million -\ 3 million \ 4 million 1 new plant \ 30 million -\ 6 million \ 6 million 2 new plants \ 40 million -\ 12 million \ 8 million -What decision would be made using the maximin rule?

(Multiple Choice)

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Question 46

Refer to the following: A firm is considering two projects, A and B, with the following probability distributions for profit. Profit ( \1 ,000s) Praject A Probability (\%) Project B Prabability (\%) \ 20 10 10 40 15 15 50 50 25 80 15 40 100 10 10 -What is the variance of project B?

(Multiple Choice)

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Question 47

Refer to the following: A firm is considering the decision of investing in new plants. It can choose no new plants, one new plant, or two new plants. The following table gives the profits for each choice under three states of the economy. The manager assigns the following probabilities to each state of the economy: the economy expands, 20%, the economy contracts, 40%, or the economy is unchanged 40%. $\text { The economy }$ expands (0.20) contracts (0.40) unchanged (0.40) no new plants \ 10 million -\ 2 million \ 3 million 1 new plant \ 20 million -\ 3 million \ 7 million 2 new plants \ 30 million -\ 6 million \ 5 million -Using the coefficient of variation rule, the firm should build

(Multiple Choice)

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Question 48

Refer to the following: The following table shows the expected value and variance for 5 projects a firm can undertake. Praiecl Expeted Value Variance A \ 100 \ 124 B \ 220 \ 110 C \ 100 \ 138 D \ 180 \ 138 E \ 200 \ 124 -Which of the following is (are) correct if the mean-variance rule is used for the decision?

(Multiple Choice)

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Question 49

Use the following two probability distributions for sales of a firm to answer Questions : Sales Distribution1 Probability Distribution2 Probability 2,000 0.05 0.05 3,000 0.20 0.15 4,000 0.50 0.20 5,000 0.20 0.35 6,000 0.05 0.25 -Which distribution is more risky?

(Multiple Choice)

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Question 50

Refer to the following: The following payoff matrix shows the various profit outcomes for 3 projects, A, B, and C, under 2 possible states of nature: the product price is $10 or the product price is $20. Profit Project P=\ 10 P=\ 20 A 20 80 B 40 60 C -26 140 -Using the maximin rule, the decision maker would choose

(Multiple Choice)

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Question 51

Using the following: The manager's utility function for profit is U $\pi$ = 10 ln $\pi$ , where $\pi$ is the dollar amount of profit. The manager is considering a risky decision with the four possible profit outcomes shown below. The manager makes the following subjective assessments about the probability of each profit outcome: $\begin{array} { c c } \text { Prabability } & \text { Profit outcome (\$) } \\\hline 0.05 & \$ 5,000 \\0.10 & \$ 10,000 \\0.35 & \$ 15,000 \\0.50 & \$ 20,000\end{array}$ -Given this utility function for profit, the utility of profit is

(Multiple Choice)

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Question 52

Refer to the following: The following payoff matrix shows the profit outcomes for three projects, A, B, and C, for each of two possible product prices. There is a 60% probability the price will be $10 and a 40% probability the price will be $20. Profit Project P=\ 10 P=\ 20 A 20 80 B 40 60 C -26 140 -Using the maximum expected value rule a decision maker would choose

(Multiple Choice)

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Question 53

Refer to the following: The following payoff matrix shows the various profit outcomes for 3 projects, A, B, and C, under 2 possible states of nature: the product price is $10 or the product price is $20. Profit Project P=\ 10 P=\ 20 A 20 80 B 40 60 C -26 140 -Using the maximum expected value rule, the decision maker would choose

(Multiple Choice)

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Question 54

Refer to the following: A firm making production plans believes there is a 30% probability the price will be $10, a 50% probability the price will be $15, and a 20% probability the price will be $20. The manager must decide whether to produce 6,000 units of output (A), 8,000 units (B) or 10,000 units (C). The following table shows 4 possible outcomes depending on the output chosen and the actual price. Prodi ( Loss ) when price is Prodiction \ 10 \ 15 \ 20 G,000 (A) -\ 200 \ 400 \ 1,000 B,000 (B) -\ 400 \ 600 \ 1,600 10,000(C) -\ 1,000 \ 800 \ 3,000 -What is the expected profit if 6,000 units are produced?

(Multiple Choice)

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Question 55

Risk exists when

(Multiple Choice)

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Question 56

In the maximin strategy, a manager choosing between two options will choose the option that:

(Multiple Choice)

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Question 57

Refer to the following: The following payoff matrix shows the profit outcomes for three projects, A, B, and C, for each of two possible product prices. There is a 60% probability the price will be $10 and a 40% probability the price will be $20. Profit Project P=\ 10 P=\ 20 A 20 80 B 40 60 C -26 140 -Using the mean variance rule a decision maker would choose

(Multiple Choice)

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Question 58

Refer to the following probability distribution for profit Prafit Prabability \ 30 0.05 40 0.25 50 0.60 60 0.10 -What is the variance of this distribution?

(Multiple Choice)

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Question 59

In making decisions under risk

Refer to the following: A firm is considering two projects, A and B, with the following probability distributions for profit. Profit ( \1 ,000s) Praject A Probability (\%) Project B Prabability (\%) \ 20 10 10 40 15 15 50 50 25 80 15 40 100 10 10 -A decision maker who is risk neutral would

In the maximax strategy a manager choosing between two options will choose the option that

Refer to the following: A firm is considering two projects, A and B, with the following probability distributions for profit. Profit ( \1 ,000s) Praject A Probability (\%) Project B Prabability (\%) \ 20 10 10 40 15 15 50 50 25 80 15 40 100 10 10 -What is the variance of project B?

Use the following two probability distributions for sales of a firm to answer Questions : Sales Distribution1 Probability Distribution2 Probability 2,000 0.05 0.05 3,000 0.20 0.15 4,000 0.50 0.20 5,000 0.20 0.35 6,000 0.05 0.25 -Which distribution is more risky?

Risk exists when

In the maximin strategy, a manager choosing between two options will choose the option that:

Refer to the following probability distribution for profit Prafit Prabability \ 30 0.05 40 0.25 50 0.60 60 0.10 -What is the variance of this distribution?

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