Answered: Kier, the industry analyst of Globe,…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 2MC

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Kier, the industry analyst of Globe, wants to determine the propensity of Major Internet companies toward risk. He was able to determine the utility distribution of Globe, PLDT and Converge. For Globe, If the expected payoff of a venture is a loss of 50,000, the utility value is 0.00, if a loss of 25,000, the utility value is .2, if breakeven, the utility value is .5, if gain of 25,000 .8 and if gain of 50,000 utility value is 1. For PLDT, if loss of 50,000 utility value is 0, if loss of 25,000 utility value is .1, breakeven is .4, if a gain of 25,000, utility value is .7 and if gain of 50,000 utility value is 1. For Converge, if loss of 50,000, utility value is 0, if loss of 25,000, utility value is .3 breakeven is .6, if gain of 25,000, utility value is .9 and gain of 50,000, utility value is 1. What is the propensity to risk of the three internet companies? Explain your graph.

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