Florentino Allers is the production manager of Electronics Manufacturer. Due to limited capacity, the company can only produce one of two possible products: An industrial motherboard with a 75% probability of making a profit of $1 million and a 25% probability of making a profit of $150,000. A regular motherboard with a 100% chance of making a profit of $670,000. Florentino will get a 20% bonus from his department. Florentino has the responsibility to choose between the two products and is more of a risk-taker, more so than most of the top management at Electronics Manufacturer. A. Which option is Florentino more likely to choose and why? Florentino will choose the industrial motherboard since he is a risk-taker, and a 75% chance of a $1 million profit is much higher than (even though there is a 25% chance of a $150,000 profit with the industrial motherboard). B. Which option would the company be more likely to choose and why? the The company, being a lower risk higher (25% chance) of only earning $150,000. taker than Florentino, would prefer the regular motherboard because of the certainty of earning $ expected value of the industrial motherboard is $ , the potential difference of $ higher risk While the is not enough to offset the C. What changes should the company make to Florentino's compensation to avoid unnecessary risks? The company should reduce the size of the bonus and increase Feedback the salary, thus leveling the playing field when it comes to risk-taking. Check My Work A. For a risk taker, what profit level is more attractive? Think of risk taken and the associated potential for the reward for doing so. B. Consider options that are certain versus others that have risks with no guarantee of desired results. How much of a difference would there need to be between the two choices to play a role in this decision? C. Consider the incentives in place to influence risk taking. What changes could be made to minimize this incentive and subsequently the desire to take risks?