DiscWk7 - Homework Week 7 17.1 Global Expansion Youre the manager of global opportunities for a US Manufacturer who is considering expanding sales into

# DiscWk7 - Homework Week 7 17.1 Global Expansion Youre the...

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Homework Week 7 17.1 Global Expansion : You’re the manager of global opportunities for a US Manufacturer, who is considering expanding sales into Asia. Your market research has identified the market potential in Malaysia, Philippines, and Singapore as described in the text (see pp. 229). The product sells for \$10 and has costs of \$8. If you can enter only one market, and the cost of entering the market (regardless of which market you select) is \$250,000, should you enter one of the markets? If so, which one? If you enter, what is your expected profit? This is an example of a Trinomial Random Variable X where “X” = potential for success in three different markets: Malaysia, Philippines, and Singapore. The Average expected return for each market is: Malaysia = 540,000 units x \$2.00 = 1,080,000; Philippines = 460,000 units x \$2.00 = 920,000; and Singapore = 570,000 units x \$2.00 = 1,140,000. Each market offers a greater profit than the cost to enter (\$250,000) but since the option is to enter one market I would choose Malaysia with an expected average profit of \$830,000. 17.2 Game Show Uncertainty : In the final round of a TV game show, contestants have a chance to increase their current winnings of \$1million to \$2million. If they are wrong, their prize is decreased to \$500,000. A contestant thinks his guess will be right 50% of the time. Should he play? What is the lowest probability of a correct guess that would make playing profitable? If the contestant has 50% chance of increasing by \$1 million and 50% chance of losing \$500,000: 0.50 X +\$1,000,000 = \$500,000 0.50 X -\$500,000 = \$250,000 It makes sense to play. The lowest probability of success to make the play profitable is 25%. 19.3 Bicycle Insurance and Information Asymmetry : You sell bicycle theft insurance. If bicycle owners do not know whether they are high- or low-risk consumers, is there an adverse selection problem? There is definitely an adverse selection problem! The consumer