Firm X Is Considering a Project and Its Analysts Have

question 85

Multiple Choice

Firm X is considering a project and its analysts have projected the following outcomes and their probabilities. $$\begin{array} { c c l } \text { Outcome } & \text { Probability of Outcome } & \text { Assumptions } \\\$ 4,600 & 30 \% & \text { pessimistic } \\\$ 7,800 & 45 \% & \text { moderately successful } \\\$ 13,500 & 25 \% & \text { optimistic }\end{array}$$ What is the expected value of the outcomes?

• A)$3,123
• B)$8,633
• C)$8,265
• D)Cannot be determined.Depends upon which prediction is correct.

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Definitions:

Product Differentiation

The process of distinguishing a product or service from others in the market to make it more appealing to a particular target market.

Oligopoly Model

An economic model describing a market structure where a few firms dominate, often leading to pricing and output decisions that consider competitors' actions.

Allocative Efficiency

A state of resource allocation where resources are distributed according to consumer preferences, often considered an optimal distribution of goods and services.

Prisoners' Dilemma

A scenario in game theory that demonstrates why two rational individuals might not cooperate, even if it appears that it is in their best interest to do so.