John Is Trying to Decide Whether to Expand His Business

question 44

Multiple Choice

John is trying to decide whether to expand his business or not.If he continues his business as it is,with no expansion,there is a 50 percent chance he will earn $100,000 and a 50 percent chance he will earn $300,000.If he does expand,there is a 30 percent chance he will earn $100,000,a 30 percent chance he will earn $300,000 and a 40 percent chance he will earn $500,000.It will cost him $150,000 to expand.John should:

• A) expand, since he expects to earn $320,000 by expanding, and it will only cost him $150,000 to do so.
• B) not expand, because there is a chance John will earn the same as if he didn't expand and would be out the $150,000 investment.
• C) not expand, since he expects to earn $120,000 more by expanding than not, and it will cost him $150,000 to do so.
• D) expand, since he has a 70 percent chance of earning more than the cost of expansion.

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Definitions:

Psychosexual Development

Psychosexual Development is a Freudian theory that proposes individuals pass through a series of stages from childhood to adulthood, where pleasure focuses on different parts of the body.

Superego

The superego is a component of Sigmund Freud's psychoanalytic theory, acting as the ethical component of the personality and providing moral standards by which the ego operates.

Id

In Freudian psychology, the part of the mind that is the source of instinctual impulses and demands for immediate satisfaction of basic needs.

Libido

A psychological term used to describe sexual desire or drive.