Course: ECN 601 - Economics Chapter 17 - Uncertainty

Course: ECN 601 - Economics

Chapter 17 - Uncertainty

Textbook: Froeb, McCan, Shor & Ward. Managerial Economics: A problem solving approach. 4th Edition

Question:

17-2 Game Show Uncertainty

In the final round of a TV game show, contestants have a chance to increase their current winnings of

$1 million to $2 million. If they are wrong, their prize is decreased to $500,000. A contestant thinks his guess will be right 50% of the time. Should he play? What is the lowest probability of a correct guess that would make playing profitable?

Question 2:

Group Problem

G17-1 Uncertainty.

Describe a decision your company has made when facing uncertainty. Compute the expected costs and benefits of the decision. Offer advice on how to proceed. Compute the profit consequences of the advice.