The New Owner of a Beauty Shop Is Trying to Decide

question 101

Multiple Choice

The new owner of a beauty shop is trying to decide whether to hire one, two, or three beauticians. She estimates that profits next year (in thousands of dollars) will vary with demand for her services, and she has estimated demand in three categories, low, medium, and high. $$\begin{array} { | l | l | l | l | } \hline { \begin{array} { l } \text { NUMBER } \\\text { OF } \\\text { BEAUTICIANS }\end{array} } & { \text { DEMAND } } \\\hline & \text { LOW } & \text { MEDIUM } & \text { HIGH } \\\hline \text { One } & 50 & 75 & 100 \\\hline \text { Two } & 0 & 100 & 100 \\\hline \text { Three } & - 100 & 70 & 300 \\\hline\end{array}$$ If she feels the chances of low, medium, and high demand are 50 percent, 20 percent, and 30 percent respectively, what is her expected value of perfect information?

• A) $54,000
• B) $65,000
• C) $70,000
• D) $80,000
• E) $135,000

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Definitions:

Extrinsic Motivation

The drive to perform actions or engage in activities due to external rewards or pressures rather than for intrinsic satisfaction.

Extrinsic Motivation

Motivation driven by external rewards such as money, fame, grades, and praise.

Drive-reduction

A theory in psychology that suggests motivation arises from the need to reduce internal drives such as hunger or thirst, leading to certain behaviors.

Relatedness

The need to feel connected to others, being part of a group or relationship that provides a sense of belonging.