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Question: The CEO of a chemicals firm must decide whether to develop a new process that has been suggested by the research division. His decision tree is shown in Figure. There are two sources of uncertainty. The production cost is viewed as a continuous random variable, uniformly distributed between $1.75 and $2.25, and the size of the market (units sold) for the product is normally distributed with mean 10,300 units and standard deviation 2,200 units.
The firm's CEO is slightly risk-averse. His utility function is given by
U(Z) = 1 - e-Z/20,000 where Z is the net profit
Should the CEO develop the new process? Answer this question by running a computer simulation, using 10,000 trials. Should the decision maker be concerned about the fact that if he develops the new process, the utility could be less than or greater than the utility for $0? On what basis should he make his decision?
Analyze the major short-run and long-run production and cost functions for the low-calorie microwaveable food company.
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Our bodies might also spontaneously increase their basal metabolic rate (BMR), which measures energy use while resting. If both energy uses increased, regressing fat gain on NEA alone, Make a scatterplot of these data. The relationship appears to..
What price should the firm charge if it wants to maximize its profits in the short run?
Define inflation.Assume that you live in a simple economy in which only three goods are produced and traded: fish, fruit, and meat. Suppose that on January 1, 2010, fish sold for $2.50 per pound, meat was $3.00 per pound, and fruit was $1.50 per poun..
Suppose the marginal product of labor in the economy is given by MPN = 0.002(16,000 - N), while the supplyof labor is 1000 + 1000w.(a) Find the market-clearing real wage rate and level of employment.(b) What happens to the wage rate and employment if..
Second, traf?c on the side street has grown to the point at which traf?c control may be upgraded from a stop sign in that direction. Provide guidance for a new engineer for each step of the decision- making process. For example, what criteria and ..
Direct and positive relationship between a firm's size and its top-level managers' compensation. Explain what inducement you think that relationship provides to upper-level executives.
How do stock prices behave if stock markets are efficient and if investors do not care about risk? Explain the major options available to a bank that is short of reserves. What determines which option a bank is likely to choose? How can the Fed affec..
Gamma corporation one of the firms which retains you as the financial analyst is considering buying out Beta Corporation. Discuss how these data provide evidence of inefficiency. How could the new manager of Beta Corporation improve efficiency?
How the country's policies influence its productivity growth? How the country's financial system is related to key macroeconomic variables? How your organization can reduce the risk they would face in relocating?
Your ethical code of conduct plan for your company's international business expansion plan should include all of the different concepts and ideas covered over the past several weeks.
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