In Figure 13.4 with MNB1 = 10 − (A1/2) and MNB2 = 20 − (A2/2) known with certainty, find the levels of A1 and A2,

(a) if there is no irreversibility,

(b) if irreversibility applies but is ignored in decision making, and

(c) if irreversibility is taken into account. Hence calculate the cost of ignoring irreversibility.

Suppose now that there is imperfect knowledge of the future, and a risk-neutral decisionmaker aware of and taking into account irreversibility assigns equal probabilities to the mutually exclusive future states where MNB2 = 10 − (A1/2) and MNB2 = 20 − (A2/2).
What will be the selected levels for A1 and A2?