Statistics for Management and Economics (Book Only)
11th Edition
ISBN: 9781337296946
Author: Gerald Keller
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 22.1, Problem 14E
a:
To determine
Calculate the EMV value.
b:
To determine
Calculate the opportunity loss.
c:
To determine
Calculate the EOL value.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
You hold an oral, or English, auction among three bidders. You estimate that each bidder has a value of either $40 or $50 for the item, and you attach probabilities to each value of 50%. The winning bidder must pay a price equal to the second highest bid.
The following table lists the eight possible combinations for bidder values. Each combination is equally likely to occur.
On the following table, indicate the price paid by the winning bidder.
Combination Number
Bidder 1 Value
Bidder 2 Value
Bidder 3 Value
Probability
Price
($)
($)
($)
1
$40
$40
$40
0.125
2
$40
$40
$50
0.125
3
$40
$50
$40
0.125
4
$40
$50
$50
0.125
5
$50
$40
$40
0.125
6
$50
$40
$50
0.125
7
$50
$50
$40
0.125
8
$50
$50
$50
0.125
The expected price paid is
.
Suppose that bidders 1 and 2 collude and would be willing to bid up to a maximum of their values, but the two bidders would not be willing to bid against each…
When a famous painting becomes available for sale, it is often known which museum or collector will be the likely winner. Yet, the auctioneer actively woos representatives of other museums that have no chance of winning to attend anyway.
Suppose a piece of art has recently become available for sale and will be auctioned off to the highest bidder, with the winner paying an amount equal to the second highest bid. Assume that most collectors know that Valerie places a value of $15,000 on the art piece and that she values this art piece more than any other collector. Suppose that if no one else shows up, Valerie simply bids $15,000/2=$7,500 and wins the piece of art.
The expected price paid by Valerie, with no other bidders present, is $________..
Suppose the owner of the artwork manages to recruit another bidder, Antonio, to the auction. Antonio is known to value the art piece at $12,000.
The expected price paid by Valerie, given the presence of the second bidder Antonio, is $_______.
.
An investor considers investing $17,000 in the stock market. He believes that the probability is 0.22 that the economy will improve, 0.42 that it will stay the same, and 0.36 that it will deteriorate. Further, if the economy improves, he expects his investment to grow to $23,000, but it can also go down to $11,000 if the economy deteriorates. If the economy stays the same, his investment will stay at $17,000. What is the expected value of his investment?
Chapter 22 Solutions
Statistics for Management and Economics (Book Only)
Ch. 22.1 - Prob. 1ECh. 22.1 - Prob. 2ECh. 22.1 - Prob. 3ECh. 22.1 - Your education as a statistics practitioner can be...Ch. 22.1 - Prob. 5ECh. 22.1 - Prob. 6ECh. 22.1 - Prob. 7ECh. 22.1 - Prob. 8ECh. 22.1 - Prob. 9ECh. 22.1 - Prob. 10E
Ch. 22.1 - Prob. 11ECh. 22.1 - Prob. 12ECh. 22.1 - Prob. 13ECh. 22.1 - Prob. 14ECh. 22.1 - Prob. 15ECh. 22.1 - Prob. 16ECh. 22.2 - Prob. 17ECh. 22.2 - Prob. 18ECh. 22.2 - Prob. 19ECh. 22.2 - Prob. 20ECh. 22.2 - Prob. 21ECh. 22.2 - Prob. 22ECh. 22.2 - Prob. 23ECh. 22.2 - Prob. 24ECh. 22.2 - Prob. 25ECh. 22.2 - Prob. 26ECh. 22.2 - Prob. 27ECh. 22.2 - Prob. 28ECh. 22.2 - Prob. 29ECh. 22.2 - Prob. 30ECh. 22.2 - Prob. 31ECh. 22.2 - Prob. 32ECh. 22.2 - Prob. 33ECh. 22.2 - Prob. 34ECh. 22.2 - Prob. 35ECh. 22.2 - Prob. 36ECh. 22.2 - Prob. 37ECh. 22.2 - Prob. 38ECh. 22.2 - Prob. 39ECh. 22.2 - Prob. 40ECh. 22.2 - Prob. 41ECh. 22.2 - Prob. 42ECh. 22.2 - Prob. 43ECh. 22.2 - Prob. 44E
Knowledge Booster
Similar questions
- The score obtained on an emotional intelligence test is normally distributed,with an average score (μ) of 112 and a standard deviation (σ) of 8.5. What is the probability that a randomly selected person will:Q.6.3.1 Obtain a score between 111 and 116? Interpret your answer. Q.6.3.2 Obtain a score between 107 and 110? Interpret your answer.arrow_forwardollowing is the payoff table for the Pittsburgh Development Corporation (PDC) Condominium Project. Amounts are in millions of dollars. State of Nature Decision Alternative Strong Demand S1 Weak Demand S2 Small complex, d1 8 7 Medium complex, d2 14 5 Large complex, d3 20 -9 Suppose PDC is optimistic about the potential for the luxury high-rise condominium complex and that this optimism leads to an initial subjective probability assessment of 0.8 that demand will be strong (S1) and a corresponding probability of 0.2 that demand will be weak (S2). Assume the decision alternative to build the large condominium complex was found to be optimal using the expected value approach. Also, a sensitivity analysis was conducted for the payoffs associated with this decision alternative. It was found that the large complex remained optimal as long as the payoff for the strong demand was greater than or equal to $17.5 million and as long as the payoff for…arrow_forwardA drug company is considering investing $100 million today to bring a weight loss pill to the market. At the end of one year, the firm will know the payoff; there is a 0.50 probability that the pill will sell at a high price and generate $37 million per year of profit forever and a 0.50 probability that the pill will sell at a low price and generate $I million per year of profit forever. The interest rate is 10%. Suppose the firm decides to wait one year to determine whether the pill will sell at a high or low price. The firm will not invest if it learns that the pill will sell at a low price. What is the net present value of waiting one year to make the investment?O $88 millionO$122.72 millionO $201.22 millionO $64.5 millionarrow_forward
- Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for poor quality used cars is $10,000. Assume a potential used car buyer has imperfect information as to the condition of any given used car. Assume this potential buyer believes the probability a given used car is good quality is .60 and the probability a given used car is low quality is .40. Assume the seller has perfect information on all cars in inventory. If the seller sells the buyer a poor quality car, what is the net-benefit to the seller? a. A net gain of $6,000. b. A net loss of $20,000. c. A net loss of $6,000. d. A net gain of $10,000.arrow_forwardGiven a choice between two investments with the same expected payoff: a. Most people will choose the one with the lower standard deviation b. Most people will opt for the one with the higher standard deviation c. Most people will be indifferent since the expected payoffs are the same d. Most people will calculate the variance to assess the relative risks of the two choicesarrow_forwardYou are taking a multiple-choice test that awards you one point for a correct answer and penalizes you 0.25 points for an incorrect answer. If you have to make a random guess and there are five possible answers, what is the expected value of guessing? Group of answer choices -0.25. 0.25. 0.5. 1. 0.arrow_forward
- A software developer makes 175 phone calls to its current customers. There is an 8 percent chance of reaching a given customer (instead of a busy signal, no answer, or answering machine). The normal approximation of the probability of reaching at least 20 customers is Multiple Choice .022 .007 .063 .937arrow_forwardJohn wants to buy a used car. He knows that there are two types of car in the market, plums and lemons. Lemons are worse quality cars and are more likely to break down than plums. John is willing to pay £10, 000 for a plum and £2, 000 for a lemon. Unfortunately, however, he cannot distinguish between the two types. Sellers can offer a warranty that would cover the full cost of any repair needed by the car for y ∗ years. Considering the type and likelihood of problems their cars can have, owners of plums estimate that y years of guarantee would cost them 1000y, owners of lemons estimate that the cost would be 2000y. John knows these estimates and decides to offer £10, 000 if a car comes with y ∗ years of warranty, £2, 000 if a car comes without warranty. For which values of y ∗ is there a separating equilibrium where only owners of plums are willing to offer the y ∗ -years warranty? Clearly explain your reasoning.arrow_forwardCorrect answer is given..arrow_forward
- A clothing store and a jeweler are located side by side in a shopping mall. If the clothing store spend C dollars on advertising and the jeweler spends J dollars on advertising, then the profits of the clothing store will be (36 + J )C - 2C 2 and the profits of the jeweler will be (30 + C )J - 2J 2. The clothing store gets to choose its amount of advertising first, knowing that the jeweler will find out how much the clothing store advertised before deciding how much to spend. The amount spent by the clothing store will be Group of answer choices $17. $34. $51. $8.50. $25.50.arrow_forward"Jay, a writer of novels, just has completed a new thriller novel. A movie company and a TV network both want exclusive rights to market his new title. If he signs with the network, he will receive a single lump sum of $1,480,000, but if he signs with the movie company, the amount he will receive depends on how successful the movie is at the box office.The probability of a small box office earning $203,000 is 0.27. The probability of a medium box office of $1,660,000 is 0.49, and the probability of a large box office of $2,950,000 is 0.24.Jay can send his novel to a prominent movie critic to assess the potential box office success. It will cost $20,000 to get the novel evaluated by the movie critic.The movie critic can have either a favorable or unfavorable opinion. The movie critic's reliability of predicting box office success is as follows.If the movie will have a large box office, there is a 0.75 probability the critic will have a favorable opinion.If the movie will have a medium…arrow_forwardTwo identically able agents are competing for a promotion. The promotion is awarded on the basis of output (whomever has the highest output, gets the promotion). Because there are only two workers competing for one prize, the losing prize=0 and the winning prize =P. The output for each agent is equal to his or her effort level times a productivity parameter (d). (i.e. Q2=dE1 , Q2=dE2). If the distribution of “relative luck” is uniform, the probability of winning the promotion for agent 1 will be a function of his effort (E1) and the effort level of Agent 2 (E2). The formula is given by...Prob(win)=0.5 + α(E1-E2), where α is a parameter that reflects uncertainty and errors in measurement. High measurement errors are associated with small values of α (think about this: if there are high measurement errors, then the level of an agent’s effort will have a smaller effect on his/her chances of winning). Using this information, please answer the following questions. Both workers have a…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning