Week 7 Homework.docx - 17.2 Game Show Uncertainty From the...

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17.2 Game Show Uncertainty From the text, we learned how to calculate the following: Profits is they win 0.50 * (1,000,000) = 500,000 Loss is calculated by: 0.50 * 500,000 =250,000 500,000 > 250,000 so they should play the gameshow. Probability P(win) + (1-p) (loss) >1 =[P(2) + (1-p)(0.5)] >1 =2p + 0.5 – 0.5p) >1 = 1.5p – 0.5 > 1 =p >0.5/1.5 =p >0.33 The above equation tells us the lowest probability is 33% and playing the game is profitable Froeb, L. M., McCann, B.T., Shor, M. and Ward, M.R. (2018). BUS 5421: Managerial Economics, A problem-solving approach. Boston, MA: Centage Learning, 18.4 Asset Auctions in Sweden The current managers are often the highest bidders because as managers know the intimate details of the company such as net worth of the company, financial obligations, and problems that exist within the organization. Given the inside information they know, compared to others that are not associated with the company, they have better knowledge of how to make a profit than any outsider. 19.1 Leasing Residuals A) In this week reading we learned about adverse selection and this is a prime example of adverse selection, a problem that arises from hidden (asymmetrical) information.

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