You are a hotel manager, and are considering four projects that yield different

Question

You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. The potential payoffs and corresponding probabilities are summarized in the following table. The expected value of project A is A) $30. B) $10. C) $20. D) None of the above. 2 You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. The potential payoffs and corresponding probabilities are summarized in the following table. Which project has the lowest standard deviation? A) A. B) B. C) C. D) D. 3 You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. The potential payoffs and corresponding probabilities are summarized in the following table. Which of the following statements is true? A) A risk-averse manager will prefer project D. B) A risk-loving manager will prefer project B. C) A risk-neutral manager will prefer project A. D) None of the above. 4 You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. The potential payoffs and corresponding probabilities are summarized in the following table. If a manager adopted both project B and C simultaneously, the expected value of this joint project would be A) 50. B) 70. C) 90. D) 110.

An orange farmer must decide how many oranges to harvest for the world market. He knows that there is a one-half probability that the world price will be $4, a one-quarter probability that it will be $8, and a one-quarter probability that it will be $12 per bushel. His cost function is C(Q) = 0.05Q2. How many bushels of oranges should the farmer bring to the market to maximize profits? A) 0.7. B) 70. C) 120. D) None of the above.

Explanation / Answer

1.

Correct Answer:

C. $20

Working note:

Probability of Boom for project A             = .5

Probability of Recession for project A     = .5

Payoff in boom for project A      =             $50

Payoff in recession for project A =           -$10

Thus,

Expected payoff = P1*PP1 + P2*PP2 = .5*50 + .5*(-10) = 25-5 = $20

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Note: please attach the relevant data of probability and potential payoff also to answer the question.

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