Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 20, Problem 9APA
To determine
Identify whether J and Z choose the project or not.
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For the following questions consider this setting.
The deciding shot in a soccer game comes down to a penalty shot. If the goal-keeper jumps in one corner and the striker shots the ball in the other, then it is a goal. If the goalie jumps left and the striker shoots left, then it is a goal with probability 1/3. If the goalie jumps right and the striker shots right, it is goal with probability 2/3.
Say the goalie's strategy is to jump left with probability 1 and the striker shoots left with probability 0.5, then the probability of a goal is (round to two digits)
If the striker shoots in either corner with probability 0.5 and the goalie likewise shoots in either corner with probability 0.5, then the probability of a goal is (round to 2 digits)
Burger Prince Restaurant is considering the purchase of a $100,000 fire insurance policy. The fire statistics indicate that in a given year the probability of property damage in a fire is as follows:
Fire Damage
$100,000
$75,000
$50,000
$25,000
$10,000
$0
Probability
.006
.002
.004
.003
.005
.980
If Burger Prince was risk neutral, how much would they be willing to pay for fire insurance?
If Burger Prince has the utility values given below, approximately how much would they be willing to pay for fire insurance?
Loss
$100,000
$75,000
$50,000
$25,000
$10,000
$5,000
$0
Utility
0
30
60
85
95
99
100
A risk-averse manager is considering a project that will cost £100. There is a 10 percent chance the project will generate revenues of £100, an 80 percent chance it will yield revenues of £50, and a 10 percent chance it will yield revenues of £500. Should the manager adopt the project? Explain. What will a risk-neutral and risk-loving manager do in the same situation?
Chapter 20 Solutions
Macroeconomics
Ch. 20.1 - Prob. 1RQCh. 20.1 - Prob. 2RQCh. 20.1 - Prob. 3RQCh. 20.1 - Prob. 4RQCh. 20.2 - Prob. 1RQCh. 20.2 - Prob. 2RQCh. 20.2 - Prob. 3RQCh. 20.2 - Prob. 4RQCh. 20.3 - Prob. 1RQCh. 20.3 - Prob. 2RQ
Ch. 20.3 - Prob. 3RQCh. 20.3 - Prob. 4RQCh. 20.4 - Prob. 1RQCh. 20.4 - Prob. 2RQCh. 20.4 - Prob. 3RQCh. 20 - Prob. 1SPACh. 20 - Prob. 2SPACh. 20 - Prob. 3SPACh. 20 - Prob. 4SPACh. 20 - Prob. 5SPACh. 20 - Prob. 6SPACh. 20 - Prob. 7APACh. 20 - Prob. 8APACh. 20 - Prob. 9APACh. 20 - Prob. 10APACh. 20 - Prob. 11APACh. 20 - Prob. 12APACh. 20 - Prob. 13APACh. 20 - Prob. 14APACh. 20 - Prob. 15APACh. 20 - Prob. 16APACh. 20 - Prob. 17APACh. 20 - Prob. 18APACh. 20 - Prob. 19APACh. 20 - Prob. 20APACh. 20 - Prob. 21APACh. 20 - Prob. 22APACh. 20 - Prob. 23APA
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