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HW-506 Acme-two products
A manager must determine which of two products to market. From market studies the manager constructed the following payoff matrix of the present value of all future net profits under all the different possible states of the economy.
State of the economy Profitability Profit
Product 1
Boom .2 is profitablity and $50 the profit.
Normal .5 is profitablity and 20 the profit
Recession .3 is profitablity and 0 is the profit
Product
Boom .2 is profitablity and $30 is the profit
Normal .4 is profitablity and 20 is the profit
Recession .4 is profitablity and 10 is the profit
The manager’s utility for money function is
U=100M-M2
Where M refers to dollars of profit.
Is the manager a risk seeker, risk neutral, or risk averter? Why?
Answer will be sent by email as attachment.
State of the economy Profitability Profit
Product 1
Boom .2 is profitablity and $50 the profit.
Normal .5 is profitablity and 20 the profit
Recession .3 is profitablity and 0 is the profit
Product
Boom .2 is profitablity and $30 is the profit
Normal .4 is profitablity and 20 is the profit
Recession .4 is profitablity and 10 is the profit
The manager’s utility for money function is
U=100M-M2
Where M refers to dollars of profit.
Is the manager a risk seeker, risk neutral, or risk averter? Why?
Answer will be sent by email as attachment.
