The Owner of Tastee Cookies Needs to Decide Whether to Lease

question 29

Multiple Choice

The owner of Tastee Cookies needs to decide whether to lease a small, medium, or large new retail outlet. She estimates that monthly profits will vary with demand for her cookies as follows: If she feels there is a 30 percent chance that demand will be high, what is her expected payoff under certainty?

• A) $1,600
• B) $1,100
• C) $1,000
• D) $900
• E) $500

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Definitions:

Budget Constraints

The limitations on the spending behavior of consumers, based on their income and the prices of goods and services.

Consumer Equilibrium

A state where the allocation of resources by consumers results in the maximization of their utility, with no incentive to change their consumption pattern.

Utility

In economics, it refers to the satisfaction or benefit derived by consumers from consuming goods and services.

Income

The monetary payment received for work or through investments, including wages, salaries, or dividends.