Mark M Upp Has Just Been Fired as the University Bookstore

question 101

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: Using expected utility theory, what should Mark do?

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Definitions:

World Politics

The study of how global actors such as countries, companies, and non-governmental organizations interact on the international stage.

International Affairs

The study and management of relationships between nations, including diplomacy, trade negotiations, and conflict resolution.

Great Britain

A geographical and political term that refers to the island containing England, Scotland, and Wales.

Hyperinflation

An extremely high and typically accelerating inflation rate, eroding the real value of the local currency and causing the population to minimize their holdings of the money.