Mark MUpp Has Just Been Fired as the University Bookstore Manager

question 117

Essay

Mark M.Upp has just been fired as the university bookstore manager for setting prices too low (only 20 percent above suggested retail).He is considering opening a competing bookstore near the campus, and he has begun an analysis of the situation.There are two possible sites under consideration.One is relatively small while the other is large.If he opens at Site 1 and demand is good, he will generate a profit of $50,000.If demand is low, he will lose $10,000.If he opens at Site 2 and demand is high he will generate a profit of $80,000, but he will lose $30,000 if demand is low.He also has decided that he will open at one of these sites.He believes that there is a 60 percent chance that demand will be high.He assigns the following utilities to the different profits:
U(50,000)= 0.72 U(-10,000)= 0.22
U(80,000)= 1 U(-30,000)= 0
Using expected utility theory, what should Mark do?

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Definitions:

Discrimination Learning

Responding in different ways to different stimuli

Generalization Test Stimulus

A stimulus that differs from the original conditioned stimulus and is used to test the extent of stimulus generalization in an experimental setting.

Conditioning Stimulus

In classical conditioning, a previously neutral stimulus that, after association with an unconditioned stimulus, elicits a conditioned response.

Discrimination Training

Involves teaching an individual to differentiate between stimuli and respond appropriately, emphasizing the development of discriminatory skills.