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HW2Graded

# HW2Graded - UF-ESI-6321 UF-ESI-632-1 O.xmcd page I of 2...

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UF-ESI-6321 13.2-10 My current income is I := 40000 dollars I believe that I owe UF-ESI-632 1-13-02-1 O.xmcd page I of 2 T:= 8000 in taxes. For C:= 500 dollars dollars I can hire a CPA to review my tax return; there is a p := 20% chance that she will save me S:= 4000 dollars in taxes. My utility function for (disposable income) = (current income) - (taxes) - (payment to accountant) is given by f (x) := ...r; where x is disposable income. Should I hire the CPA? Calculate and compare the three lottery outcomes. IA. Hire the CPA and assume he saves me money: D 1A := 1- (T - S) - C = 35500 lB. Hire the CPA and assume he saves me no money: D 1B := I-T-C=31500 2. Do not hire the CPA: D 2 := I - T = 32000 Luther Setzer 1 NASA Pkwy EStop NEM3, Kennedy Space Center, FL 32899 (321) 544-7435

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UF-ESI-6321 UF-ESI-6321-13-02-10.xmcd page 2 of2 Calculate the expected utility of hiring versus not hiring the CPA and compare: pI(D 1A ) + (I -p)f(D IB ) = 180 f(D 2 ) = 179 Because the expected utility of hiring the CPA exceeds that of not hiring her, you should hire her. V Luther Setzer 1 NASA Pkwy EStop NEM3, Kennedy Space Center, FL 32899 (321) 544-7435
UF-ESI-632I UF-ESI-6321-13-04-02.xmcd page I of 4 13.4-02 The decision sciences department is trying to determine which of two copying machines to purchase. Both machines will satisfy the department's needs for the next t:= lO·yr Machine I costs C I := 2000 and has a maintenance agreement, which, for an annual fee of Al := 150 covers all repairs. Machine 2 costs C 2 := 3000 and its annual maintenance cost is a random variable. At present, the decision sciences department believes there is a P '= 40% I' chance that the annual maintenance cost for machine 2 will be A '= 0 2' a pz := 40% chance it will be A '= 100 2' and a P2:= 20% chance it will be A 2 := 200 Luther Setzer I NASA Pkwy EStop NEM3, Kennedy Space Center, FL 32899 (321) 544-7435

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UF-ESI-632I UF-ESI-6321-13-04-02.xmcd page 2 of 4 Before the purchase decision is made, the department can have a trained repairer evaluate the quality of machine 2. If the repairer believes that machine 2 is satisfactory, there is a P '= 60% 2' chance that its annual maintenance cost will be A '= 0 2' and a P2:= 40% chance it will be A '= 100 2' If the repairer believes that machine 2 is unsatisfactory, there is a P '= 20% 2' chance that the annual maintenance cost will be A '= 0 2' a P '= 40% 2' chance it will be and a P 2 := 40% chance it will be A '= 200 2' Luther Setzer 1 NASA Pkwy EStop NEM3, Kennedy Space Center, FL 32899 (321) 544-7435
UF-ESI-632I UF-ESI-632I-13-04-02.xmcd page 3 of 4 If there is a p:= 50% chance that the repairer will give a satisfactory report, what is EYSI?

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HW2Graded - UF-ESI-6321 UF-ESI-632-1 O.xmcd page I of 2...

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