urgent!!! Please help me solve the Part C! 3. The manager\'s utility function fo
ID: 1120743 • Letter: U
Question
urgent!!! Please help me solve the Part C!
3. The manager's utility function for profit is U(T) = 10 ln(n), where is the dollar amount of profit. The manager is considering a risky decision with the four possible profit outcomes shown below The manager makes the following subjective assessments about the probability of each profit outcome: Probability 0.05 0.10 0.35 0.50 Profit outcome Project A $1,000 $8,000 $12,000 $20,000 Profit outcome Project B $14,000 $14,000 $14,000 $14,000 a. What is the expected profit of Project A and Project B? b. What is the manager's expected utility of profit for Project A and Project B?Explanation / Answer
Find the expected utility of two projects and select the one that has a higher expected utility
E(UA) = 10*LN(1000)*0.05+10*LN(8000)*0.1+10*LN(12000)*0.35+10*LN(20000)*0.5 = 94.83
E(UB) = 10*LN(14000)*0.05+10*LN(14000)*0.1+10*LN(14000)*0.35+10*LN(14000)*0.5 = 95.47
Since project B has a higher value of expected utility we select B.
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