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A firm is considering launching a new product. Launching the product will require an investment of $10 million (including marketing expenses and the costs of new facilities). The launch is risky because demand could either turn out to be low or high. If the firm does not launch the product, its payoff is 0. Here are its possible payoffs if it launches the product.
a) Draw a decision tree showing the decisions that the company can make and the payoffs from following those decisions. Carefully distinguish between chance nodes and decision nodes in the tree.
b) Assuming that the firm acts as a risk-neutral decision maker, what action should it choose? What is the expected payoff associated with this action?
Assume an earning rate of 6% per year compounded monthly on your investments. How much must you place into your retirement plan monthly starting at the end of next month (month 1) and ending one month prior to the commencement of the retirement be..
Alchem (L) is the price leader in the polyglue market. All 10 other manufactures (follower (F) firms) sell polyglue at the same price as Alchem. Alchem allows the other firms to sell as much as they wish at the established price and supplies the r..
Suppose the demand and supply schedules for rental apartment in the city of Gotham are given below Monthly Rent $2500 $2000 $1500 $1000 $500 Apartment Demanded 10,000 12,500 15,000 17,500 20,000
Show the impact of an open market sale on the interest rate and output. Show both the immediate- and the longer-term impacts.
Calculate b1, the slope of an OLS regression line using dollars spent as the dependent variable (Y) and age as the independent variable (X). Consider the follow data on moviegoer spending on snacks: Dollars Spent (Y) Age (X) 8.50 30
Assume, instead, that the economy in exercise 19.10 lasts only for two periods. In the first period, there is only a young consumer. In the second period, there is one old consumer and a new young consumer. At the end of the second period, the eco..
What is the value of your income elasticity of demand for eggs? Are eggs normal or inferior good to you?
Estimate the project's net cash flows over its five-year estimated life. (Hint: Use the following format as a guide.)
What are the pros and cons of these two arguments? What, in your opinion, are good long-run goals for reducing inflation and unemployment?
Why are primary cities-generally the capital- often disproportionately large in many developing countries? Which factors can be addressed with better policies? What is an industrial district? How might governments of developing countries help them..
Consider a seller who values a car at $9,500 and a buyer who values the same car at $10,000. What total surplus will result from a transaction between the two when the seller is faced with the following sales tax rates: 0%, 2%, 4%, 6%, and 8%
Plot the steady-state level of consumption per unit of labor as a function of s. Show that it is maximized when 1 k = 0:15.
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