Economics For Healthcare Managers
4th Edition
ISBN: 9781640550483
Author: Robert H. Lee
Publisher: Health Administration Pr
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Question
Chapter 4, Problem 1E
To determine
Calculate the expected payoff and its variance.
Expert Solution & Answer
Explanation of Solution
The expected payoff is the average, which can be calculated as follows:
The total number of people is 10. Among them, 5 of them earn zero, four of them earn $100, and one loses $100. Thus, the total earnings will be $300. Thus, expected payoff can be calculated as follows:
Thus, the expected payoff is 30.
The variance can be calculated using the formula given below:
The variance can be calculated as follows:
Thus, the variance is 4100.
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Students have asked these similar questions
Five of ten people earn $0, four earn $100, and one loses $100. What is the expected payoff? What is the variance of the payoff?
You have a 50 percent chance of making $0, a 40 percent chance of making $100, and a 10 percent chance of losing $100. Calculate the expected value and variance of the payoff.
You are a hotel manager and you are considering four projects that yield different payoffs, depending upon whether there is an economic boom or a recession. The potential payoffs and corresponding payoffs are summarized in the accompanying table.
Project
Boom (50%)
Recession (50%)
A
$ 20
−$ 10
B
−$ 10
$ 20
C
$ 30
−$ 30
D
$ 50
−$ 50
The variance in the returns of project D is
Multiple Choice
1,600.
225.
900.
0.
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