Refer to the Following:
a Firm Is Considering the Decision $\text { The economy }$

question 41

Multiple Choice

Refer to the following:
A firm is considering the decision of investing in new plants. It can choose no new plants, one new plant, or two new plants. The following table gives the profits for each choice under three states of the economy. The manager assigns the following probabilities to each state of the economy: the economy expands, 20%, the economy contracts, 40%, or the economy is unchanged 40%.
$\text { The economy }$
$\begin{array}{lccc} & \text { expands }(0.20) & \text { contracts }(0.40) & \text { unchanged }(0.40) \\\hline \text { no new plants } & \$ 10 \text { million } & -\$ 2 \text { million } & \$ 3 \text { million } \\1 \text { new plant } & \$ 20 \text { million } & -\$ 3 \text { million } & \$ 7 \text { million } \\2 \text { new plants } & \$ 30 \text { million } & -\$ 6 \text { million } & \$ 5 \text { million }\end{array}$
-Using the mean variance rules, which decision is correct?

• A) The firm should build no new plants.
• B) The firm should build one new plant.
• C) The firm should build two new plants.
• D) If deciding only between one or two new plants, the firm should build one.
• E) If deciding only between one or two new plants, the firm should build two.

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Definitions:

Authority Ranking

A social structure where individuals are ranked according to their power, status, or authority, with clear hierarchies and levels of command.

Market Pricing

The process of determining the selling price of a product or service based on supply, demand, and other market factors.

Equality Matching

A principle of social justice that emphasizes fair distribution of resources and opportunities, ensuring that everyone receives an identical share or treatment.

Community Sharing

The practice of sharing resources, responsibilities, and benefits equally among members of a community.