Exhibit 14.3 The Following Questions Are Based on the Information Below

question 14

Multiple Choice

Exhibit 14.3
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 70% and an expanding economy at 30%.
-Refer to Exhibit 14.3. What decision should be made according to the expected monetary value decision rule?

• A) A
• B) B
• C) C
• D) Bank

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Definitions:

Price-Taking Farmer

A farmer who has no control over the market price and must accept the prevailing market prices for their products.

Corn Output

The overall amount of corn generated during a specific timeframe, commonly quantified in bushels or tons.

Workers

Individuals engaged in any form of employment or labor.

Marginal Product

The additional output a firm produces as a result of hiring one more unit of a factor of production, such as labor or capital.