A manager faces the following two probability distributions for sales: a. For Distribution 1, the expected sales
Question:
A manager faces the following two probability distributions for sales:
a. For Distribution 1, the expected sales are ______________. For Distribution 2, the expected sales are ______________.
b. For Distribution 1, the variance is ______________. For Distribution 2, the variance is ______________.
c. For Distribution 1, the standard deviation is ______________. For Distribution 2, the standard deviation is ______________.
d. Distribution ____ is the riskier of the two distributions of sales
e. For Distribution 1, the coefficient of variation is ______________. For Distribution 2, the coefficient of variation is ______________. Distribution _____ has the greater level of risk relative to its mean.
f. Assume the utility function of the manager is the following:
Is the marginal utility of the manager increasing or decreasing with the value of the sales? Is the manager, then, risk-averse or risk-prone (risk-lover)?
g. What are the expected utilities of the two different distributions of sales? Which one would the manager choose?
Modeling Monetary Economies
ISBN: 978-1107145221
4th Edition
Authors: Bruce Champ, Scott Freeman, Joseph Haslag