If a Vendor Has Correctly Used Marginal Analysis to Select

question 14

Multiple Choice

If a vendor has correctly used marginal analysis to select its stock levels for the day (as in the newsperson problem in the text) , and if the profit resulting from the last unit being sold (C_u) is $120 and the loss resulting from that unit if it is not sold (C_o) is $360, which of the following is the probability of the last unit being sold?

• A)Greater than 0.90
• B)Greater than 0.85
• C)Greater than 0.75
• D)Greater than 0.25
• E)None of these

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Definitions:

Hyperbolic Discounting

A cognitive bias where people tend to prefer smaller, immediate rewards over larger, delayed rewards, affecting decision-making.

Exponential Discounting

A process or model that describes how future benefits or costs are valued less as they are further in the future.

Interest Rate

The fraction of the borrowed amount a borrower needs to pay as interest to the lender.

Savings Account

A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.