Dante has two possible routes to travel on a business trip. One is more direct but more exhausting, taking one day but with a probability of business success of 1/4. The second takes three days, but has a probability of success of 2/3. If the value of Dante's time is $1000/day, the value of the business success is $12,000, and Dante is risk neutral,
A) it doesn't matter which path he takes, because he doesn't consider risk.
B) he should take the 1-day trip, because he doesn't consider risk.
C) he should take the 1-day trip, because $11,000 is greater than $9,000.
D) he should take the 3-day trip, because it will increase his expected net revenue by $3,000.
E) he should take the 3-day trip, because it will increase his expected net revenue by $5,000.

Question

Quizplus · Accepted Answer

Dante's expected net revenue for the 1-day trip would be: 
$12,000 * 1/4 - $1000 = $2000 
Dante's expected net revenue for the 3-day trip would be: 
$12,000 * 2/3 - $3000 = $5000 
Therefore, by taking the 3-day trip, Dante can increase his expected net revenue by $3,000, so he should choose the 3-day trip.

Dante Has Two Possible Routes to Travel on a Business