(A) Assuming We Are Risk Neutral, Use Simulation to Find

question 14

Essay

(A) Assuming we are risk neutral, use simulation to find the optimal capacity level.
(B) Using the answer to (A), there a 5% chance that the actual discounted profit will exceed what value?
(C) Using the answer to (A), there is a 5% chance that the actual discounted profit will be less than what value?
(D) If we are risk averse, how might the optimal capacity level change?

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Definitions:

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Arousal Theory

A theory of motivation that posits individuals seek to maintain an optimal level of arousal, seeking stimulation when it is low and calm when it is high.

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