Question
1. Explain the concept of opportunity loss, and show that the minimum opportunity loss is equal to the Expected Value of Perfect Information. 2. The
1. Explain the concept of opportunity loss, and show that the minimum opportunity loss is equal to the Expected Value of Perfect Information.
2. The failure rate in a particular examination is estimated to be 40%. Construct a table showing the probabilities of 0, 1, 2 . . . 5 students failing in a sample of five.
3.'Despite being a small local shopkeeper I can always beat the price that Woolworths charge for the same product. Woolworths must pay rent on its store while I own my shop and have no rent to pay.' Discuss.
4.Critically assess the methods used to generate empirical estimates of both short- and long-run cost functions. Do the empirical difficulties encountered rob the resulting estimates of any general operational utility?
5. 'About half of all advertising expenditure is wasted. The problem lies in knowing which half.' Discuss this statement and assess the usefulness of managerial models of advertising allocation decisions.
6. Analyse the effects of an increase in interest rates on the investment activity of a profit maximising firm. Does it matter if inflation increases in proportion to the increase in interest rates?
7.'The market allocates resources to the firms that best meet the needs of consumers.' Discuss.
8. The senior partner in a local accountancy firm is concerned about the error rate amongst assessments issued by her office. A careful check over the past few years enables her to estimate that the error rate has the following probability distribution: Error rate Probability 0.05 0.25 0.10 0.35 0.15 0.25 0.20 0.15 Each error costs 40 because of the labour time involved in reassessment.
Her firm is just entering the assessment 'season', and is expected to perform 500 assessments over the next few months. One way to reduce the error rate is to send all staff to a one-day training course at the local university- 'Precision in Assessment' . The university claims this would ensure an error rate of 0.05, but she considers that an error rate of 0.10 would be equally likely. The course fee is 700 for all her staff, whilst lost profit from one day's work missed would be 500. Advise her on whether to send staff on the course or not. A careful check of that day's output shows that in ten assessments, two contained errors. Use this information to update the error rate probability distribution and hence determine whether your advice needs amendment.
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