A Suppose a sales employee is deciding between two different options for generating new sales Their first option is to contact all of their prior customers to generate sales Their other option is to go after brand new customers that have never bought their products before The sales employee has the following utility function U(x) x (0 9) if x 0 Suppose the sales employee has the following information Probability of High Success Revenue with High Success Probability of Low Success Revenue with Low Success New Customers 0 2 8000000 0 8 400000 Prior Customers 0 8 2000000 0 2 1500000 1 What is the expected revenue for going after new customers 2 Calculate the certainty equivalent for going after new customers 3 What is the risk premium for going after new customers 4 Based on expected utility, which option will the employee choose

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Question: A. Suppose a sales employee is deciding between two different options for generating new sales. Their first option is to contact all of their prior

A. Suppose a sales employee is deciding between two different options for generating new sales. Their first option is to contact all of their prior customers to generate sales. Their other option is to go after brand new customers that have never bought their products before. The sales employee has the following utility function: U(x)= x^(0.9) if x>0. Suppose the sales employee has the following information:

	Probability of High Success	Revenue with High Success	Probability of Low Success	Revenue with Low Success
New Customers	0.2	8000000	0.8	400000
Prior Customers	0.8	2000000	0.2	1500000

1. What is the expected revenue for going after new customers?

2. Calculate the certainty equivalent for going after new customers?

3. What is the risk premium for going after new customers?

4. Based on expected utility, which option will the employee choose?

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