Answered: Let us assume that you have two…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Let us assume that you have two possible mutually exclusive projects available and you need to choose one of the projects. For both projects, three possible results may occur. Possible profits in thousand € (Ri) and the related probabilities (Pi) are shown in the table below.

1-Expected profit of project A is higher than the expected profit of project B that is why we will undoubtedly choose project A.

2-Risk rate of project A is higher compared to the risk rate of project B.

3-Expected profit of project B is 24 thousand €.

4-Risk rate of project A is negative because we can earn a negative profit with this project.

Let us assume that you have two possible mutually exclusive projects available and
you need to choose one of the projects. For both projects, three possible results may
occur. Possible profits in thousand € (Ri) and the related probabilities (Pi) are shown in
the table below.
Project A
Project B
Ri
Pi
Ri
Pi
50
0.4
40
0.5
20
0.5
10
0.3
|-10
0.1
0.2
Which of the following is true?

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