Question

Question 12
Suppose that a decision maker’s risk attitude toward monetary gains or losses x given by the utility function U(x) = (x+10,000)^0.5
If there is a 2.5% chance that the decision maker's car, valued at $5000, will be totaled during the next year, what is the most that she would be willing to pay each year for an insurance policy that completely covers the potential loss of her vehicle?
Please round all answers (also intermediate results to 2 decimals).

a.
327.28

b.
274.10

c.
99.27

d.
145.47

Question 18
Suppose that a decision maker’s utility as a function of her wealth, x, is given by U(x) = ln (2x) (where ln is the natural logarithm).

The decision maker now has $10,000 and two possible decisions. For Alternative 1, she loses $1000 for certain. For Alternative 2, she gains $500 with probability 0.75 and loses $5,000 with probability 0.25. Which alternative should she choose and what is her expected utility (rounded to 2 decimals)?

a.
She is indifferent between both alternatives.

b.
She should choose Alternative 2. Her expected utility is 9.83.

c.
She should choose Alternative 1. Her expected utility is 9.80.

d.
She should choose Alternative 1. Her expected utility is 9.10.

  
Question 20
A computer chip manufacturer is considering expanding production to meet possible increases in demand. The company's alternatives are to construct a new plant, expand the existing plant, or do nothing in the short run. It will cost them $1 million to build a new facility and $600,000 to expand their existing facility. The market for this particular product may expand, remain stable, or contract. The marketing department estimates the probabilities of these market outcomes as 0.20, 0.50, and 0.30, respectively. The expected revenue for each alternative is presented in the table below.

	MKT expands	MKT stable	MKT contracts
Build new plant	$1,650,000	$1,000,000	$450,000
Expand plant	$1,000,000	$850,000	$450,000
Do nothing	$0	$0	$0

What course of action is optimal for the computer chip manufacturer? What is the expected profit in that case?

a.
They should build a new plant, the expected profit is 965000.

b.
They should build a new plant if the market expands. The expected profit is 1650000.

c.
They should do nothing, the expected profit is 0.

d.
They should expand the existing plant, the expected profit is 160000.

Question 21
Consider the regression equation below that estimates the relationship between blood alcohol content (y) and number of beers consumed (x):

A guy named Dudley has this regression equation written on a scrap of paper in his pocket. Dudley goes out drinking and has 4 beers. He calculates that he is under the legal limit (0.08) so he decides to drive to another bar. Unfortunately Dudley gets pulled over and confidently submits to a road-side blood alcohol test. He scores a blood alcohol of 0.085 and gets himself arrested.
Based on your knowledge of statistics and regression analysis, how would you explain what happened?

a.
The regression equation was not correctly estimated.

b.
Even though the predicted blood alcohol level of 0.0593 was below the legal limit, his residual of 0.0257 pushed it above.

c.
Dudley incorrectly calculated his blood alcohol level.

d.
The testing device malfunctioned.

  
Question 22
A researcher wants to include the variable "Geographic region" with possible values "North", "South", "East" and "West" in a multiple regression to analyze sales. To include this categorical variable, she should include a dummy variable for each of the 4 geographic regions.
True
False

Answer 1

I have solved first two questions please post the remaining questions seperately.