Suppose the owner of a paint factory is caught dumping toxic waste in a public landfill and is sued in a civil action under pollution laws. Assume the probability he is detected when he does this is 10 percent, and the average social cost of each violation is $200,000. Should he be liable for punitive in addition to compensatory damages? If so, for how much?
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Suppose the owner of a paint factory is caught dumping toxic waste in a public landfill and is sued in a civil action under pollution laws. Assume the probability he is detected when he does this is 10 percent, and the average
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- If we take multiply the dollar value of each outcome by the probability of that outcome, the result is A) expected value B) Utility C) Value of perfect information D) One of the above If the expected value of perfect information is 0, which of the following is true? A) The expected value of imperfect information is less than 0 B) The result of learning the information has no chance of changing the preferred alternative C) The information has no effect on expected payoffs D) None of the aboveAt the beginning of each day, a patient in the hospital is classifed into one of the three conditions: good, fair or critical. At the beginning of the next day, the patient will either still be in the hospital and be in good, fair or critical condition or will be discharged in one of three conditions: improved, unimproved, or dead. The transistion probabilities for this situation are Good Fair Critical Good 0.65 0.20 0.05 Fair 0.50 0.30 0.12 Critical 0.51 0.25 0.20 Improved Unimproved Dead Good 0.06 0.03 0.01 Fair 0.03 0.02 0.03 Critical 0.01 0.01 0.02 For example a patient who begins the day in fair condition has a 12% chance of being in critical condition the next day and a 3%…A farmer must decide whether to take protective action to limit damage to his grapefruit crop in the event that the overnight temperature falls to a level well below freezing. If the temperature drops too low he runs the risk of losing his entire crop, valued at $75,000. Based on the National Weather Service, the probability of such a temperature drop is 60%. He can insulate his crop by spraying water on all the trees, which will cost $20,000. This action might succeed in protecting the crop, with the following possible outcomes: Probability Damage 0.30 $0 0.15 $5,000 0.10 $10,000 0.15 $15,000 0.30 $20,000 Construct a decision tree to help the farmer make his decision. What should he do? Explain your answer. Find the highest cost of insulating the grapefruits for which the farmer prefers to insulate his crop. Suppose the farmer is uncertain about the reliability of the National Weather Service forecast. If he thinks the probability of…
- A farmer must decide whether to take protective action to limit damage to his grapefruit crop in the event that the overnight temperature falls to a level well below freezing. If the temperature drops too low he runs the risk of losing his entire crop, valued at $75,000. Based on the National Weather Service, the probability of such a temperature drop is 60%. He can insulate his crop by spraying water on all the trees, which will cost $20,000. This action might succeed in protecting the crop, with the following possible outcomes: Probability Damage 0.30 $0 0.15 $5,000 0.10 $10,000 0.15 $15,000 0.30 $20,000 a. Construct a decision tree to help the farmer make his decision. What should he do? b. Find the highest cost of insulating the grapefruits for which the farmer prefers to insulate his crop. c. Suppose the farmer is uncertain about the reliability of the National Weather Service forecast. If he thinks the probability of a freeze occurring…A farmer must decide whether to take protective action to limit damage to his grapefruit crop in the event that the overnight temperature falls to a level well below freezing. If the temperature drops too low he runs the risk of losing his entire crop, valued at $75,000. Based on the National Weather Service, the probability of such a temperature drop is 60%. He can insulate his crop by spraying water on all the trees, which will cost $20,000. This action might succeed in protecting the crop, with the following possible outcomes: Probability Damage 0.30 $0 0.15 $5,000 0.10 $10,000 0.15 $15,000 0.30 $20,000 Construct a decision tree to help the farmer make his decision. What should he do?According to the Institute of Internal Auditors, risk is a combination of the probability of an event and its consequence and that consequences can range from positive to negative True or False?
- A company has prepared a design for a new product which it can either sale for K100 000 or develop into a marketable product at a cost of K150 000. The chances of success if the product is developed are 0.7. If this attempt fails the design can only be sold at K20 000. If the attempt succeeds the business has the choice of either selling the design and developed product for K180 000 or marketing the product. If the product is marketed then there is a 0.6 probability that the product will generate a cash inflow of K800 000 and a 0.4 probability that it will generate a cash outflow of (K100 000). Both figures exclude items previously mentioned Supposing there is a small change in the estimated probabilities of success and failure in the product development phase from 0.7: 0.3 to 0.6: 0.4 what would be the change in expected value?Peter Martin will help his brother who wants to open a grocery store. Peter initially believes there is a 50-50 chance that his brother's food store will be successful. Peter is considering doing market research. Based on historical data, there is a 0.8 probability that the market research will be favorable given a successful store. Furthermore, there is a 0.7 probability that the market research will be unfavorable given an unsuccessful store. a) If the market research is favorable, what is Peter's revised probability of a successful store for his brother?b) If the market survey is unfavorable, what is Peter's revised probability of a successful store for his brother?c) If the initial probability of a successful store is 0.60 (instead of 0.50), find the probabilities of (a) and (b).A company is considering whether to market a new product. Assume, for simplicity, that if this product is marketed, there are only two possible outcomes: success or failure. The company assesses that the probabilities of these two outcomes are p and 1 - p, respectively. If the product is marketed and it proves to be a failure, the company will have a net loss of $450,000. If the product is marketed and it proves to be a success, the company will have a net gain of $660,000. If the company decides not to market the product, there is no gain or loss. The company can first survey prospective buyers of this new product. The results of the consumer survey can be classified as favorable, neutral, or unfavorable. Based on similar surveys for previous products, the company assesses the probabilities of favorable, neutral, and unfavorable survey results to be 0.6, 0.3, and 0.1 for a product that will eventually be a success, and it assesses these probabilities to be 0.1, 0.2, and 0.7 for a…
- A salesperson uses three different airlines. The probabilities of switching from one airline to another in consecutive flights are shown below. If the last flight was on Delta, what is the probability that the next was on American? American Delta Southwest American 0.5 0.25 0.25 Delta 0.2 0.6 0.2 Southwest 0.3 0.3 0.4 A 0.5 B 0.2 C 0.25 D 0.6A company is considering whether to market a new product. Assume, for simplicity, that if this product is marketed, there are only two possible outcomes: success or failure. The company assesses that the probabilities of these two outcomes are p and 1 2 p, respectively. If the product is marketed and it proves to be a failure, the company will have a net loss of $650,000. If the product is marketed and it proves to be a success, the company will have a net gain of $1,150,000. If the company decides not to market the product, there is no gain or loss. The company can first survey prospective buyers of this new product. The results of the consumer survey can be classified as favorable, neutral, or unfavorable. Based on similar surveys for previous products, the company assesses the probabilities of favorable, neutral, and unfavorable survey results to be 0.5, 0.3, and 0.2 for a product that will eventually be a success, and it assesses these probabilities to be 0.2, 0.3, and 0.5 for a…A customer has approached a bank for a $100,000 one-year loan at an 8% interest rate. If the bank does not approve this loan application, the $100,000 will be invested in bonds that earn a 6% annual return. Withoutadditional information, the bank believes that there is a 4% chance that this customer will default on the loan, assuming that the loan is approved. If the customer defaults on the loan, the bank will lose $100,000. Ata cost of $1000, the bank can thoroughly investigate the customer’s credit record and supply a favorable or unfavorable recommendation. Past experience indicates that the probability of a favorable recommendation for acustomer who will eventually not default is 0.80, and the chance of a favorable recommendation for a customer who will eventually default is 0.15.a. Use a decision tree to find the strategy the bank should follow to maximize its expected profit.b. Calculate and interpret the expected value of information (EVI) for this decision problem.c. Calculate…