4. A managers utility function for profit is U( ) 20 , where is the dollar amount...
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4. A manager’s utility function for profit is U( ) 20 , where is the dollar amount of profit. The manager is considering a risky decision with the four possible profit outcomes shown here. The manager makes the following subjective assessments about the probability of each profit outcome:
Profit Probability outcome 0.05 $10,000 0.45 2,000 0.45 4,000 0.05 20,000
a. Calculate the expected profit.
b. Calculate the expected utility of profit.
c. The marginal utility of an extra dollar of profit is .
d. The manager is risk because the marginal utility of profit is .
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Related Book For
Managerial Economics
ISBN: 9780073375915
10th Edition
Authors: Christopher R Thomas, S Charles Maurice
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