Chez Paul Is Contemplating Either Opening Another Restaurant or Expanding

question 33

Essay

Chez Paul is contemplating either opening another restaurant or expanding its existing location.The payoff table for these two decisions is:
Paul has calculated the indifference probability for the lottery having a payoff of $160,000 with probability p and −$80,000 with probability (1−p)as follows:

a.Is Paul a risk avoider,a risk taker,or risk neutral?
b.Suppose Paul has defined the utility of −$80,000 to be 0 and the utility of $160,000 to be 80.What would be the utility values for −$40,000,$20,000,and $100,000 based on the indifference probabilities?
c.Suppose P(s₁)= .4,P(s₂)= .3,and P(s₃)= .3.Which decision should Paul make? Compare with the decision using the expected value approach.

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Definitions:

Employee Referral

A recruitment method where current employees recommend potential candidates for open positions within the company, sometimes rewarded with incentives.

Internet Job Site

A platform on the World Wide Web dedicated to employment searching and recruitment, where employers post job vacancies and job seekers submit resumes.

Company Objective

A specific, measurable goal that a business endeavors to achieve to advance its mission and improve success.

Employee Training

A planned effort to teach employees more about their job so as to improve their performance and motivation.