(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:

Rely

Depend on or trust in something or someone for support or maintenance.

Voidable

A contract or transaction that is legally valid but may be declared void by one of the parties.

Unenforceable

Refers to a contract or clause that, due to legal deficiencies or fairness issues, cannot be compelled or enforced by law.

Annullable

Refers to something that can be declared void or invalid, usually in a legal context.