Read the following article, which introduces the concepts of expected value and optimal decision making. Then answer the question that follows.EXPECTED VALUE AND OPTIMAL DECISION MAKING, BY THE APLIA ECONOMICS CONTENT TEAMAs an alternative to raising property taxes in order to increase revenue, the village of Port Chester, New York, recently increased parking meter ratesby 25% and also raised parking fines. According to an article from the lohud.com news site (Gabriel Rom, "Port Chester Increases Parking Costs,Fines," lohud.com, May 2, 2017), officials are hoping that the increased parking costs will yield an additional $500,000 in revenue for the village.Although in the past drivers may have been more willing to risk parking illegally, the optimal behavior for Port Chester drivers may have changed asthe cost of a ticket has risen.Undoubtedly, some motorists will continue to take certain "gambles," perhaps risking a ticket for illegal parking in exchange for the benefit of savedtime. Is this behavior rational? Economists analyze decisions involving uncertainty using the concept of expected value to determine optimal coursesof action.In economics, the expected value (EV) of a gamble is calculated by assigning payoff values to potential outcomes and multiplying those values by theprobability they occur. For instance, suppose we are going to bet on the flip of a coin. I'll give you $20 if a fair coin lands on heads, and you'll give me$20 if it lands on tails. The expected value of my winnings is calculated as follows:EV = (PayoffHeads × Probability heads) + (PayoffTails × Probability Tails)×(-$20 × 0.5) + ($20 ×= $0=0.5)If the coin is flipped once, I will end up with either $20 or -$20, so it might seem strange to say that the "expected value" of my winnings is zero. Ifthe coin is flipped over and over again, however, heads and tails should each come up roughly an equal number of times; therefore, I have no reasonto expect positive or negative overall winnings in the long run.A person who is risk neutral is indifferent when a gamble has an expected value of $0 but will accept a gamble with a positive expected value andreject a gamble with a negative expected value.For the sake of simplicity, though, this analysis has assumed risk neutrality, despite people's tendency to be somewhat risk averse. In any situationthat is going to occur repeatedly, the risk diminishes as the average of multiple outcomes converges to the expected value. Unlike the extremevariation in possible outcomes that lead risk-averse people to buy health, home, or auto insurance, the amount that a person who parks illegally everyday will pay in fines will converge to the expected value more quickly.Suppose you pay $25 to enter into a raffle with a $400 prize. If you have a 5% chance of winning, the expected value of buying a raffle ticket is$

The expected value is a statistical term that denotes the typical outcome of a chance event after…

Answered: Suppose you pay $25 to enter into a…

Suppose you pay $25 to enter into a raffle with a $400 prize. If you have a 5% chance of winning, the expected value of buying a raffle ticket is $

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In a large casino, the house wins on its blackjack tables with a probability of 50.9%. All bets at blackjack are 1 to 1, which means that if you win, you gain the amount you bet, and if you lose, you lose the amount you bet. a. If you bet $1 on each hand, what is the expected value to you of a single game? What is the house edge? b. If you played 150 games of blackjack in an evening, betting $1 on each hand, how much should you expect to win or lose? c. If you played 150 games of blackjack in an evening, betting $3 on each hand, how much should you expect to win or lose? d. If patrons bet $7,000,000 on blackjack in one evening, how much should the casino expect to earn? a. The expected value to you of a single game is $ (Type an integer or a decimal.)
If the farmer uses pesticides he expects a crop of 60,000 bushels; if he does not use pesticides he expects a crop of 55,000 bushels. The cost of pesticides is $20,000 and the other costs associated with planting and harvesting the crop total $450,000. The price of corn at harvest time will either be $10.00 with probability of 0.50 or it will be $12.00 with probability 0.50, so if the farmer decides to sell the crop at harvest, the expected price per bushel that he will receive is $11.00. If the farmer does not use pesticides and decides to sell the crop at harvest, what is his expected revenue? a. $550,000.00 b. $660,000.00 c. $600,000.00 d. $605,000.00
In the Hawaiian Beach Boy surf board vendor scenario, what if the fine was increased to $190 but the probability of a fine decreased to one in 20 days, 5%? What would be the expected value – Exp(RS) -- of continuing to rent surfboards? Assume the other numbers stay the same. He makes $300/day and to rent boards from friends costs him $100 a day. So, he makes $200 a day. Write out the expected value formula, plug in the numbers, and show the math. Hint: the Exp(RS) should be higher than the previously calculated $160.
Suppose you have an exponential utility function given by U(x) =1- exp(-x/R) where, for you, R = 1000. Further, suppose you have an investment with a 50/50 chance of returning either 0 or 2000 dollars. Note U(0) = 0 and U(2000) = 0.865, so the utility of the lottery is 0.432. What is the certain equivalent of that investment?
A wheel of fortune in a gambling casino has 54 different slots in which the wheel pointer can stop. Four of the 54 slots contain the number 9. For a 1 dollar bet on hitting a 9, if he or she succeeds, the gambler wins 10 dollars plus the return of the 1 dollar bet. What is the expected value of this gambling game? What is the meaning of the expected value result?
Suppose Xavier has tickets to the Super Bowl, but is terribly ill with a noncontagious infection. How would a decision maker perform his economic calculation on whether to attend the game, based on the traditional model of risk behavior?
Clancy has difficulty finding parking in his neighborhood and, thus, is considering the gamble of illegally parking on the sidewalk because of the opportunity cost of the time he spends searching for parking. On any given day, Clancy knows he may or may not get a ticket, but he also expects that if he were to do it every day, the average amount he would pay for parking tickets should converge to the expected value. If the expected value is positive, then in the long run, it will be optimal for him to park on the sidewalk and occasionally pay the tickets in exchange for the benefits of not searching for parking. Suppose that Clancy knows that the fine for parking this way is $100, and his opportunity cost (OC) of searching for parking is $20 per day. That is, if he parks on the sidewalk and does not get a ticket, he gets a positive payoff worth $20; if he does get a ticket, he ends up with a payoff of
Thelma is indifferent between $100 and a bet with a 0.6 chance of no return and a 0.4 chance of $200. If U(0) = 20 and U(200) = 220, then U(100) = :
Q1) An expected utility maximiser owns a car worth £60000£60000 and has a bank account with £20000£20000. The money in the bank is safe, but there is a 50%50% probability that the car will be stolen. The utility of wealth for the agent is u(y)=ln(y)u(y)=ln⁡(y) and they have no other assets.
Suppose 1,250 raffle tickets are being sold for $5 each. One ticket will be chosen to receive a cash prize of $2,500, and three tickets will be chosen to recelve cash prizes of $500. Let x be the amount of money won/lost by purchasing one raffle ticket. Find the expected value for . (Round your answer to the nearest penny. Do not include as sign in your answer. Your answer may be positive or negative.)
An insurance company estimates that drivers have a 5% chance of getting into an accident that will cost the driver $10,000. There are two types of drivers: the ones with $50,000 in the bank and the ones with only $5,000. In case of an accident those with $5,000 will declare bankruptcy and creditors can only recover $5,000. What is the fair pair of insurance and will those with $5,000 in the bank buy it? Why?
Time remaining: 01 :53 :32 Economics A dealer decides to sell an antique automobile by means of an English auction with a reservation price of $900. There are two bidders. The dealer believes that there are only three possible values, $7,200, $3,600, and $900, that each bidder’s willingness to pay might take. Each bidder has a probability of 1/3 of having each of these willingnesses to pay, and the probabilities for each of the two bidders are independent of the other’s valuation. Assuming that the two bidders bid rationally and do not collude, the dealer’s expected revenue from selling the car is approximately Group of answer choices $3,600. $2,500. $3,900. $5,400. $7,200.