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- (Ch 7) Suppose a standard normal random variable has an 80 percent chance falling in an interval (–z, z). The value of z is approximately ____ (use Appendix C-1). a. 1.45 b. 1.35 c. 1.96 d. 1.28Give typing answer with explanation and conclusion Suppose that the government must undertake an irreversible policy decision regarding the extent of air pollution regulation. The government is making this decision in a situation of uncertainty, however. In particular, there is some probability p that the benefits will remain the same as they are this year for all future years, but there is some probability 1 - p that benefits will be less in all future years. If we take into consideration the multiperiod aspects, should we err on the side of overregulation or underregulation, compared to what we would do in a single-period choice?53. The annual demand for Prizdol, a prescription drugmanufactured and marketed by the NuFeel Company,is normally distributed with mean 50,000 and standarddeviation 12,000. Assume that demand during each ofthe next 10 years is an independent random numberfrom this distribution. NuFeel needs to determine howlarge a Prizdol plant to build to maximize its expectedprofit over the next 10 years. If the company builds aplant that can produce x units of Prizdol per year, it willcost $16 for each of these x units. NuFeel will produceonly the amount demanded each year, and each unit ofPrizdol produced will sell for $3.70. Each unit of Prizdol produced incurs a variable production cost of $0.20.It costs $0.40 per year to operate a unit of capacity.a. Among the capacity levels of 30,000, 35,000,40,000, 45,000, 50,000, 55,000, and 60,000 unitsper year, which level maximizes expected profit?Use simulation to answer this question.b. Using the capacity from your answer to part a,NuFeel can be 95%…
- A farmer believes there is an equal chance that the next growing season will be abnormallyrainy. His expected return function has the formExpected return = 0.5lnYNR + 0.5lnYRwhere YNR and YR represent the farmer’s income in the states of “normal rain”and “rainy,” respectively.Suppose the farmer must choose between two crops that promise the following incomeprospects:Crop YNR YRMaize $14,000 $5,000Cotton $9,500 $7,500a) Which of the crops will he plant?b) Suppose the farmer can plant half his field with each crop. Would he choose to do so?Explain your result.c) What mix of Maize and Cotton would provide maximum expected utility to this farmer?d) Would Maize crop insurance, available to farmers who grow only Maize, which costs$2,000 and pays off $4,000 in the event of a rainy growing season, cause this farmer tochange what he plants?We consider the following decision problem, with 4 decisions di,i∈{1,…,4}, and four possible outcomes ωi,i∈{1,…,4}, with the following table of profits: ω1 ω2 ω3 ω4 d1 30 30 0 30 d2 20 20 20 20 d3 0 50 10 40 d4 15 30 10 25 Which decision should be chosen for rewards depending on four different possible outcomes, according to the maximin rule, maximax rule, and optimism-pessimism rule with α<1/3?**Practice** I have been trying to practcie this question but I always seem to get it wrong What is the expected final wealth of each agent? Pay attention to the names in each option!A. Anna’s expected final wealth is 1440 and Bob’s expected final wealth is 980B. Anna’s expected final wealth is 1020 and Bob’s expected final wealth is 1380C. Anna’s expected final wealth is 1460 and Bob’s expected final wealth is 1105D. Anna’s expected final wealth is 1140 and Bob’s expected final wealth is 1200E. None of the options above
- I cannot figure out how the equation goes from q1 = D1 (p1; p2) = S(1/2 + (p2-p1/2t)) to q1 = S/2 +(p2-p1/2t) why is S not in the numerator of both terms? i.e. q1 = S/2 + S(p2-p1/2t)Suppose now that that Y denotes the annual salaries (in thousands of dollars) for US citizenswho are in their 40s and 50; and X is an indicator (dummy) variable: X = 1 if that workergraduated from college and X=0 otherwise. Suppose the average annual salary for this age groupis $45,000 and the estimate for β is β~ = 15 with s.e. = 5.b. What is the upper and lower bound of a 95-percent confidence interval for β~ ?c. In a credible research design attending college would be randomly assigned to a largesample of potential students. Propose such a research design. What are the potential ethicalissues? d. The central problem with drawing credible casual inferences is that the counterfactual cannot be observed. What is the counterfactual in this case? What is a good strategy forobtaining the counter-factual? What are the ethical issues of doing this? b-d please!!!If consumption is $30,000 when income is $35,000, and consumption increases to $35,000 when income increases to $43,000, the MPS is Select one: O a. None of the options O b. 0 O c. 0.625 O d. 0.375
- A bank faces a pool of borrowers with measure one in two successive periods. In each period, each borrower wishes to borrow 1 unit from the bank. In each period, a low risk borrower's project returns G = 2 with probability p, = 0.9 and O otherwise, while a high risk borrower's project yields B = 3.5 with probability p, = 0.5 and zero otherwise. The bank knows Pg that the proportion of low risk borrowers is y = 0.4. However, the bank is unable to distinguish between low and high risk borrowers, i.e. it doesn't have an appropriate screening technology.Adam is considering what skills to study in online school. Her utility function is based on the income she earns, and is defined by U(I) = I0.8. If she learns the skill of SPSS, she will earn $145,000 per year with probability 1. If she learns the skill of Tableau, she will earn $300,000 per year with probability 0.6 (assuming that she gets the certificate) and $30,000 with probability 0.4 (if she learns without earning a certificate and she has to find a waiter job). a. Is she risk averse, risk neutral, or risk loving? Explain.b. Write out the equation for her expected utility for each skill. c.Which skill will she learn? Show your work. d.Suppose someone offers her insurance for the possibility that she does not get a Tableau certificate. This insurance will provide her an amount of income in addition to the waiter job wages that makes her indifferent between learning SPSS and Tableau. What is this amount, and what is the cost of the insurance? (note: many possible answers)Suppose Real Option Inc. has a product that generates the following cash flow. At t=1, the demand can be high or low. There is a probability of 0.6 that demand is high. If demand is high (low) the cash flow is CFH=400 (CFL=200). At t=2, the demand can also be high or low. If demand was high at t=1, then a high demand at t=2 arises with probability 0.7. If demand was low at t=1, then a high demand at t=2 arises with probability 0.2. If demand is high (low) at t=2 then CFH=400 (CFL=200). The interest rate for this project is 20%. (a) Draw the event and decision tree. (b) What is the market price (expected value) of Real Option Inc. at t=0? Now suppose Real Option Inc. can rent a platform to run a marketing campaign. For this purpose Real Option Inc. must sign a two year contract with the platform provider. The costs for using the platform are 180 per period. Marketing itself does not cost anything and has the following effect. In the high demand state, marketing doubles the demand. In…
