Scenario 5.8*

Risk-neutral Icarus Airlines must commit now to leasing 1, 2, or 3 new airplanes. It knows with certainty that on the basis of business travel alone, it will need at least 1 airplane. The marketing division says that there is a 50% chance that tourism will be big enough for a second plane only. Otherwise, tourism will be big enough for a third plane. This, plus revenue information, yields the following table:

PlanesLeasedTourism RevenueExpectedProfit

LightHeavy

2$90 million$30 million$60 million

3$10 million$140 million$75 million

Refer to Scenario 5.8. Without additional information, Icarus Airlines would

A) lease 3 airplanes because $140 million is greater than $90 million.

B) lease 3 airplanes because heavy tourism is more likely than light tourism.

C) lease 2 airplanes in order to guarantee it avoids the worst outcome, $10 million.

D) lease 3 airplanes because $75 million is greater than $60 million.

lease only the one airplane it is sure it can use.