Exhibit 14.2 The Following Questions Are Based on the Information Below

question 112

Multiple Choice

Exhibit 14.2
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem.
-Refer to Exhibit 14.2. What formula should go in cell F5 of the Regret Matrix above to compute the regret value?

• A) =B$5-MAX(B$5:B$8)
• B) =MAX(B$5:B$8)-MAX(B5)
• C) =MAX(B$5:B$8)-MIN(B$5:B$8)
• D) =MAX(B$5:B$8)-B5

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Definitions:

Marginal Revenue

The additional income from selling one more unit of a good; sometimes equal to the price of the good.

Total Fixed Costs

The sum of all costs that remain constant regardless of the level of production or output in a business.

Recession

A period of declining real GDP, accompanied by lower real income and higher unemployment.

Average Fixed Cost

The fixed expenses of a business spread out over the total number of units produced, decreasing as production increases.