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:

Decreasing Slope

A downward trend on a graph indicating that one variable decreases as another variable increases.

Risk-loving

A preference for options with uncertain outcomes, even when the expected return is the same as safer alternatives.

Universal Health Coverage

A health care system in which all individuals have access to quality health services without suffering financial hardship.

Lemon Laws

Laws designed to offer remedies to consumers for products such as automobiles that repeatedly fail to meet standards of quality and performance.