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August 30, 2014

August 30, 2014

Posted by **Susan** on Saturday, December 5, 2009 at 6:35am.

(A) 20 units.

(B) 50 units.

(C) 49 units.

(D) 34 units.

(E) None.

(Solution is A, 20 units)

- Economics -
**economyst**, Saturday, December 5, 2009 at 3:48pmIf she makes 20, she sells all 20 and makes 20 profit.

If she makes 50 there is a .5 chance she sells all 50 and makes a 50 profit, and a .5 chance she sells 20, throws 30 in the trash and makes a 10 loss. Her expected profit is .5*50 + .5*(-10) = 20.

Since the sure-thing of option A makes 20 and the risky option makes of option B makes 20 and since she is a bit risk averse, option A is better than option B.

Just to be sure, repeat for options C and D.

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