Solved

The Dean of a College Wants to Determine Which of Two

question 173

Multiple Choice

The dean of a college wants to determine which of two new classes to offer for the upcoming semester. Due to facility constraints only one class can be offered at this time. The dean feels that the first class has an 80 percent chance of earning the college about $75,000, but a 20 percent chance of losing $35,000. If the class is successful, then its next level class will be offered, with a 75 percent chance of earning $60,000, but a 25 percent chance of losing $30,000. Weighing the options, the dean feels that the second class has a 60 percent chance of earning $85,000, but a 40 percent chance of losing $40,000. If the second class is successful, then its next level class will be offered with a 50 percent chance of earning $80,000, but a 50 percent chance of losing $45,000. If both classes are not successful, neither of their next level classes will be offered to the students.What is the expected value for selecting the second class?

Understand the concept of "creative destruction" and its significance in economic progress.

Understand the concept of price discrimination and its conditions.

Identify factors influencing a firm's decision to engage in price discrimination.

Recognize how price discrimination affects consumer prices based on demand elasticity.

Definitions:

Average Inventory

An accounting measure that calculates the average value of inventory over a certain period of time to help assess inventory levels.

Buying Habits

Patterns or tendencies consumers exhibit when purchasing goods or services, including frequency, timing, and preference.

Direct Disposal Costs

Costs directly associated with the disposal of a fixed asset, including costs to remove, dismantle, and transport the asset.

Lower of Cost

A valuation rule often used in inventory accounting to record the cost of inventory at the lower of its original cost or its current market value.