1. Suppose an investment project has an NPV of $150 million if it becomes successful and an NPV of ?$50 million if it is a failure. What is the minimum probability of success above which you should make the investment?
a. 0.5
b. 1/3
c. 0.25
d. 0.1
2. Your production line has recently been producing a serious defect. One of two possible processes, A and B, could be the culprit. From past experience you know that the probability that A is causing the problem is 0.8 but investigating A costs $100,000 while investigating B costs only $20,000. What are the expected error costs of shutting down process B first?
a. $80,000
b. $20,000
c. $16,000
d. $4,000
3. You want to price posters at the Poster Showcase profitably and run an experiment to estimate the demand elasticity. You raise the price of kitten posters 10% but keep your dog poster prices unchanged. After a month, kitten poster unit sales fall by 12%, but dog posters rise by 8%. Why might the elasticity estimate from this experiment be biased?
4. Tennessee just instituted a state lottery. The initial jackpot is $100,000. If the first week yields no winners, the next week's jackpot goes up, depending on the number of previous players who placed the $1 lottery bets. The probability of winning is one in a million (1.0
1. Suppose an investment project has an NPV of $150 million if it becomes successful and an NPV of ?$50 million if it is a failure. What is the minimum probability of success above which you should make the investment?
a. 0.5
b. 1/3
c. 0.25
d. 0.1
2. Your production line has recently been producing a serious defect. One of two possible processes, A and B, could be the culprit. From past experience you know that the probability that A is causing the problem is 0.8 but investigating A costs $100,000 while investigating B costs only $20,000. What are the expected error costs of shutting down process B first?
a. $80,000
b. $20,000
c. $16,000
d. $4,000
3. You want to price posters at the Poster Showcase profitably and run an experiment to estimate the demand elasticity. You raise the price of kitten posters 10% but keep your dog poster prices unchanged. After a month, kitten poster unit sales fall by 12%, but dog posters rise by 8%. Why might the elasticity estimate from this experiment be biased?
4. Tennessee just instituted a state lottery. The initial jackpot is $100,000. If the first week yields no winners, the next week's jackpot goes up, depending on the number of previous players who placed the $1 lottery bets. The probability of winning is one in a million (1.0
