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You are a risk-neutral person whose net worth is $450,000. You are thinking about opening a donut franchise, which will require an initial investment of

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You are a risk-neutral person whose net worth is $450,000. You are thinking about opening a donut franchise, which will require an initial investment of $150,000. If you go ahead, the probability is p_1 that you will make $500,000, p_2 that you will break even, and p_3 that you will lose the entire investment. There are three possible outcomes. Calculate your net worth at each of them. Assume that p_1 = 0.1, p_2 = 0.4, and p_3 = 0.5. Use tabular form to express the probabilities of the various possible values of net worth as consequences of your two possible courses of action. (Each course of action should be a row in the table.) What is the best decision? Write the tabular form of the decision problem in general (i.e. using letters for p_1, p_2, and p_3 instead of numbers.) By substituting p_3 = 1 - p_2 - p_3, find a general condition on p_1 and p_2 that is necessary and sufficient for you to be willing to invest in the franchise

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