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September 22, 2014

Homework Help: Economics

Posted by Devon on Monday, February 25, 2008 at 10:13pm.

A person must decide whether or not to proceed with a particular investment project. If the project succeeds, She will gain $15 million. If the project fails, she will lose $3 million. She estimates there is a 20% chance that the project will succeed and an 80% chance it will fail.

There is a consultant that could tell her with certainty if the project succeed or fail, but only for a fee. What is the most that she should be willing to pay the consultant for the information? Explain. Assume that she correctly estimated the probabilities of the projectís likely success and failure.

I AM LOST on this one - can anyone please help?

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