9781118041581

Answers to Odd-Numbered Problems 23

development. Since sequential development has the greater risk (i.e.,

dispersion of possible outcomes), a risk-averse firm chooses the

biochemical approach.

57.5

.7

.3

$60 (55)

• $20

48.1

.2

$180 (95)

Quit

Success

Failure

Biogen. First

.8

48.1 $20 (32)

*15. The dealer must commit to ordering and selling some number of yachts

(say, Q) before knowing the course of the economy. Recall that the two

price equations are given by PG 20  .05Q, and PR 20  .1Q. Then,

the expected price required to sell Q yachts is: .6PG .4PR 20  .07Q.

Expected profit is simply expected revenue minus cost. This is

maximized by setting expected MR equal to MC ($10 thousand). Thus,

MR  20  .14Q 10. So the optimal (round) number of yachts is Q 

71. This number is closer to 50 than to 100. This should not be
    surprising since we found earlier that ordering 50 was better than
    ordering 100. Here, we see that the optimal order size (one that is better
    than any other quantity) is 71 yachts.

Chapter 13

1. As tough as it may be to do, you should ignore your friend’s story. His
   experience represents a single data point. You already have gathered
   the best available information on the relative merits of different
   models. You had a clear choice based on this information; your friend’s
   singular experience should not be enough to change your probabilities
   or your mind.


2. a. The chance of a student responding is Pr(RƒS)  .08/.24 1/3. The
   chance of a doctor responding is Pr(RƒD)  .05/.18  .277. The

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