ECON 3411 Study Guide - Marginal Cost, Insider Trading, Risk Neutral

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erinlocust998

22 Sep 2014

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Document Summary

Chapter 12: answers to questions and problems: the expected value of option 1 is. The expected value of option 2 is: the variance of option 1 is. Similarly, the variance of option 2 is 279,270. The standard deviation of option 1 is 237. 17. Solve for q to find your profit- maximizing output, q = 53 units: your expected profits are (e(price))q c(q) = (53) (2(53) + 3(53)2) = ,427: the expected value, which is , the maximum value, which is . Chapter 12 - the economics of information: with only two bidders, n = 2. Thus, your optimal sealed bid is: with ten bidders, n = 10. Thus, your optimal sealed bid is: with one hundred bidders, n = 100. The lowest possible valuation is l = ,500, and your own valuation is v = ,000. Thus, your optimal sealed bid is: with 5 bidders, n = 5.

Related Questions

An angel investor is considering investing in one of two start-up businesses and is evaluating the expected returns along with the risk of each option in order to choose the better alternative.

Business 1 is an innovative protein energy drink, which has ENPV of $100,000 with a standard deviation of $40,000.

Business 2 is a unique chicken wings dipping sauce with an ENPV of $60,000 and a standard deviation of $25,000.

a) Apply the coefficient-of-variation decision criterion to these alternatives to find out which is preferred by the angel investor, assuming that he/she is risk-averse.

b) Apply the maximin criterion, assuming that the worst outcome in Business 1 is to lose $5,000, whereas the worst outcome in Business 2 is to make only $5,000 in profit.

c) If you were the angel investor, what is your certainty equivalent for these two projects? Are you risk averse, risk-neutral, or risk-lover

blackmacaw69

An angel investor is considering investing in one of two

start-up businesses and is evaluating the expected returns along

with the risk of each option in order to choose the better

alternative.

Business 1 is an innovative protein energy drink, which has ENPV

of $100,000 with a standard deviation of $40,000.

Business 2 is a unique chicken wings dipping sauce with an ENPV

of $60,000 and a standard deviation of $25,000.

a) Apply the coefficient-of-variation decision criterion to

these alternatives to find out which is preferred by the angel

investor, assuming that he/she is risk-averse.

b) Apply the maximin criterion, assuming that the worst outcome

in Business 1 is to lose $5,000, whereas the worst outcome in

Business 2 is to make only $5,000 in profit.

c) If you were the angel investor, what is your certainty

equivalent for these two projects? Are you risk averse,

risk-neutral, or risk-lover

lilacjackal269