A Risk-Averse Manager Is Considering Two Projects

question 103

Essay

A risk-averse manager is considering two projects.The first is to introduce a new product; the second is to revamp the production facilities at the existing plant.There is a 20 percent chance a rival will enter the market and an 80 percent chance it will not.If the rival enters,the firm will lose $20,000 if it introduces the new product,whereas revamping the production facilities will earn it $50,000 in profits.If the rival does not enter,the firm will earn $15,000 if it introduces the new product,and revamping the production facilities will earn net profits of $60,000.What should the manager do?
Why?

---

Definitions:

Blended Family

A family unit created by merging two previously separate families, often including children from one or both original families.

Single-Parent

Pertains to a family unit led and managed by one parent alone.

Biological Son

A male offspring who shares genetic material with his parents.

Natural Family

A concept often referring to a family structure centered around biological relations.