Exhibit 14.5 The Following Questions Are Based on the Information Below

question 86

Multiple Choice

Exhibit 14.5
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C, D. 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 decision tree has been developed for the problem. The investor has estimated the probability of a declining economy at 40% and an expanding economy at 60%.
-Business decision models can be categorized as

• A) decision-making under uncertainty
• B) decision-making under risk
• C) decision making under certainty
• D) (a) and (b) only

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Definitions:

Marginal Value

The additional benefit obtained from consuming or producing one more unit of a good or service.

Buffet

A serving system where food is placed in a public area, allowing diners to serve themselves.

Servings

Specific portions or quantities of food or drink, as determined for a recipe or diet.

Second Car

An additional vehicle owned by an individual or household, typically used as an alternative to the primary car.