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

question 2

Multiple Choice

Using the following:
The manager's utility function for profit is U $\pi$ = 50 $\pi$ , 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:
$$\begin{array} { c c } \text { Probability } & \text { Profit outcome (\$) } \\\hline 0.20 & - \$ 15,000 \\0.30 & - \$ 5,000 \\0.30 & \$ 5,000 \\0.20 & \$ 25,000\end{array}$$
-What is the expected profit?

• A) $2,000
• B) $3,000
• C) $4,000
• D) $5,000
• E) none of the above

Recognize the implications of the moral hazard in various settings including employment and insurance markets.

Discuss the importance and impact of asymmetric information in market transactions and relationships.

Understand the concepts of signaling and screening in economic contexts.

Recognize the principle-agent relationship in corporations and its implications.

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Definitions:

Oedipal Stage

A phase in Freudian psychosexual development where a child has unconscious desires for their opposite-sex parent and jealousy toward the same-sex parent.

Havelock Ellis

A British physician and psychologist who was an early researcher and writer on human sexuality in the late 19th and early 20th centuries.

Homosexuality

Romantic or sexual attraction or behavior between members of the same sex or gender.

Acquired

Something that has been obtained or gained, which was not innate or present from birth.