I have attached the problem below.© BrainMass Inc. brainmass.com June 17, 2018, 8:26 pm ad1c9bdddf
See the attached file. Thanks.
A manager must determine which of two products to market. From market studies the manager constructed the following payoff matrix of the present value of all future net profits under all the different possible states of the economy:
State of the Economy Probability Profit
Boom 0.2 $50
Normal 0.5 20
Recession 0.3 0
Boom 0.2 $30
Normal 0.4 20
Recession 0.4 10
The manager's utility for money function is
U = 100M - M2
I do not understand if I should be using the formula: Expected value of money = E(M)
Risk Taker or Risk Aversion is evaluated.