A Chemical Company Is in the Process of Studying Two

question 9

Essay

A chemical company is in the process of studying two long-term plans. The first plan involves expansion of their industrial division. The second plan emphasizes expansion in the business of consumer pharmaceuticals. Market research reveals the following (preliminary) results (returns are in $ millions):
$\begin{array}{c}\text {INDUSTRIAL}\\\text {EXPANSION}\\\begin{array}{cc}\text { PROBABILITY } & \text { PROFITS } \\0.3 & 10 \\0.3 & 15 \\0.4 & 20\end{array}\end{array}$ $\begin{array}{c}\text { PHARMACEUTICALS }\\\begin{array}{cc}\text { PROBABILITY} &\text {PROFITS }\\0.2 & 0 \\0.3 & 10 \\0.3 & 20 \\0.2 & 40\end{array}\end{array}$ The planning committee has the (risk averse) utility function U = 10M - 0.05M2. Discuss the long-term planning decision based on the preliminary predictions and the given utility function:

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Definitions:

Insulin

A pancreatic-produced hormone that is pivotal in the regulation of blood sugar by contributing to the absorption of glucose into various tissues.

Depth of Processing

A cognitive psychology theory that suggests the deeper the level at which information is thought about, the more likely it is to be remembered.

Hypnosis

A condition of deep attention resembling a trance, where suggestibility is increased, often applied in therapy.

Sympathetic Nervous System

Part of the autonomic nervous system responsible for the body's 'fight or flight' response during stressful situations.