The Operations Manager for a Well-Drilling Company Must Recommend Whether

question 94

Multiple Choice

The operations manager for a well-drilling company must recommend whether to build a new facility, expand his existing one, or do nothing. He estimates that long-run profits (in $000) will vary with the amount of precipitation (rainfall) as follows: $$\begin{array} { | l | l | l | l | } \hline { \text { ALTERNATIVE } } & { \text { PRECIPITATION } } \\\hline& \text { LOW } & \text { NORMAL } & \text { HIGH } \\\hline \text { Do Nothing } & - 100 & 100 & 300 \\\hline \text { Expand } & 350 & 500 & 200 \\\hline \text { Build New } & 750 & 300 & 0 \\\hline\end{array}$$ If he uses the minimax regret criterion, which alternative will he decide to select?

• A) do nothing
• B) expand
• C) build new
• D) either do nothing or expand
• E) either expand or build new

Analyze how savings rates affect the supply of loanable funds, interest rates, exchange rates, and net exports.

Relate macroeconomic policies and political stability to interest rates, exchange rates, and net exports.

Understand the relationship between real interest rates, net capital outflow, and exchange rates.

Evaluate the role and interaction of government budget deficits, investment, and savings in shaping economic outcomes.

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Definitions:

Privity of Contract

A legal principle that only the parties involved in the contract have the obligation to fulfill it and the right to enforce it.

Restatements

Thorough revisions and updates of authoritative legal texts that clarify and dictate the current state of the law in various fields.

Legislative History

The records and documents created during the enactment process of a law, which can include bill drafts, committee reports, and legislative debates, used for interpreting legislative intent.

Ethical Reason

A justification for an action or decision based on moral principles and values.