9781118041581

Answers to Odd-Numbered Problems 27

13. The decision tree shows that the firm should make the first investment
    and the second (if necessary) but not the third.

1.4 –2 –2 –8 –10

$0

.2

$15

No

–$5

.3

$12 –$8

.1

$8

Quit Quit

I1 .8 I2 .7 I3 .9

1.4 –$12

Chapter 14

1. a. We know that Pr(L)  .04, Pr(RƒL) .5, and Pr(RƒN) 1/16, where L
   denotes lemon, R denotes return, and N denotes normal car. The
   joint table is

27 .9

$30

27

8

17.5

.5

.5

25 .5

.5

$50

16 .2

.8

$80

–$10

–9 .9

.1

5 .5

.5

$10

8 .2

.8

$40

C = 120

C = 80

b = 110

b = 130

b = 160

b = 110

b = 130

b = 160

$ 0

$ 0

$ 0

$ 0

$ 0

$ 0

.1

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