Using the Following:
the Manager's Utility Function for Profit Is $\pi$

question 29

Multiple Choice

Using the following:
The manager's utility function for profit is U $\pi$ = 10 ln $\pi$ , where $\pi$ is the dollar amount of profit. The manager is considering a risky decision with the four possible profit outcomes shown below. The manager makes the following subjective assessments about the probability of each profit outcome:
$$\begin{array} { c c } \text { Prabability } & \text { Profit outcome (\$) } \\\hline 0.05 & \$ 5,000 \\0.10 & \$ 10,000 \\0.35 & \$ 15,000 \\0.50 & \$ 20,000\end{array}$$
-What is the expected profit?

• A) $12,000
• B) $13,000
• C) $14,000
• D) $15,000
• E) none of the above

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Definitions:

Marginal Cost

The increase in total cost that arises from producing one additional unit of a product or service, reflecting changes in variable costs.

Quintiles

A statistical value that divides a data set into five equal parts, often used in economic and social research to assess income distribution or other measurements.

Household Income

The combined gross income of all members of a household, typically measured annually.

Lotteries

A form of gambling involving the drawing of numbers at random for a prize, often administrated by states or organizations.