Question: (a) (bl What is the difference between the preferences of a risk-neutral manager and a risk- averse manager? A risk-neutral manager is considering two projects.

(a) (bl What is the difference between the preferences of a risk-neutral manager and a risk- averse manager? A risk-neutral 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 rm will lose 20,000 if it introduces the new product, and earn 15,000 if the rival does not enter; whereas revamping the production facilities will earn 7,000 either way. What should the manager do? Why? How might the decision be different for a risk-averse manager

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