A risk-averse manager is considering two projects.The first is to introduce a new product; the second is to revamp the production facilities at the existing plant.There is a 20 percent chance a rival will enter the market and an 80 percent chance it will not.If the rival enters,the firm will lose $20,000 if it introduces the new product,whereas revamping the production facilities will earn it $50,000 in profits.If the rival does not enter,the firm will earn $15,000 if it introduces the new product,and revamping the production facilities will earn net profits of $60,000.What should the manager do?
Why?

Question

A risk-averse manager is considering two projects.The first is to introduce a new product; the second is to revamp the production facilities at the existing plant.There is a 20 percent chance a rival will enter the market and an 80 percent chance it will not.If the rival enters,the firm will lose $20,000 if it introduces the new product,whereas revamping the production facilities will earn it $50,000 in profits.If the rival does not enter,the firm will earn $15,000 if it introduces the new product,and revamping the production facilities will earn net profits of $60,000.What should the manager do?
 Why?

Quizplus · Accepted Answer

The Answer of A risk-averse manager is considering two projects.The first is to introduce a new product; the second is to revamp the production facilities at the existing plant.There is a 20 percent chance a rival will enter the market and an 80 percent chance it will not.If the rival enters,the firm will lose $20,000 if it introduces the new product,whereas revamping the production facilities will earn it $50,000 in profits.If the rival does not enter,the firm will earn $15,000 if it introduces the new product,and revamping the production facilities will earn net profits of $60,000.What should the manager do?
 Why?

A Risk-Averse Manager Is Considering Two Projects