Ann and Bob are real estate developers, and are considering the following projects:There are two potential projects: A hotel, and a golf course. Expected profits (notincorporating initial construction costs) are as shown in the following table. Note that hotelprofits are larger if the golf course is constructed, and vice versa.Hotel profits, no golf course$100MGolf course profits, no hotel$100MHotel profits, golf course constructed$150MGolf course profits, hotel constructed$200MTime and funding constraints mean that each of Ann and Bob can do at most one of the twoprojects. Naturally, Ann and Bob also have the option of passing on both projects.The golf course costs $140M to construct. Construction of the hotel is easier if the golf coursehasn't yet been built; specifically, the hotel costs $140M to construct if constructed before thegolf course, and $160M to construct if constructed after the golf course.Ann is more alert to these potential projects than Bob is and chooses what to do first. After thecompletion of Ann's project (or if Ann decides to pass and do nothing), Bob chooses what to do.If Ann chooses to do nothing, then her decision is permanent (i.e., she doesn't revisit it afterseeing what Bob does).Building two hotels, and building two golf courses, are both such poor choices that you canignore them in the analysis.Ann and Bob are the only developers with interest and resources to carry out these projects.Treating the setting as a sequential-move game, draw the game in tree form. Then state whatoutcome you predict to occur. Specifically: Which projects, if any, are undertaken? And bywhich developer? And in what order? Do the two developers make the same profits; and if not,which developer has higher profits? Show your work

Profit structure is following : Hotel Profits 100 m Golf course profits , no hotel 100 m…

Ann and Bob are real estate developers, and are considering the following projects: There are two potential projects: A hotel, and a golf course. Expected profits (not incorporating initial construction costs) are as shown in the following table. Note that hotel profits are larger if the golf course is constructed, and vice versa. Hotel profits, no golf course $100M Golf course profits, no hotel $100M Hotel profits, golf course constructed $150M Golf course profits, hotel constructed $200M Time and funding constraints mean that each of Ann and Bob can do at most one of the two projects. Naturally, Ann and Bob also have the option of passing on both projects. The golf course costs $140M to construct. Construction of the hotel is easier if the golf course

Ann and Bob are real estate developers, and are considering the following projects: There are two potential projects: A hotel, and a golf course. Expected profits (not incorporating initial construction costs) are as shown in the following table. Note that hotel profits are larger if the golf course is constructed, and vice versa. Hotel profits, no golf course $100M Golf course profits, no hotel $100M Hotel profits, golf course constructed $150M Golf course profits, hotel constructed $200M Time and funding constraints mean that each of Ann and Bob can do at most one of the two projects. Naturally, Ann and Bob also have the option of passing on both projects. The golf course costs $140M to construct. Construction of the hotel is easier if the golf course

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.4IP

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