The business manager decides to access the latest macroeconomic predictions from the Bank of England. This provides him with the following probabilities: Recession (15%), Low Growth (30%), Medium Growth (35%), and High Growth (20%). Which option is preferred according to the expected monetary value (EMV) criterion? What attitude to risk does this represent? The business manager of Tolkien Transport wishes to analyse three strategic optionsavailable to the company (Cost-cutting; Diversification; Expansion) under four possibleUK macroeconomic conditions: Recession, Low Growth, Medium Growth and HighGrowth. He has summarised available information in the following pay-off matrix (withimpact on company profits in the next year in £000s).Macroeconomic ConditionsMedium GrowthRecession Low GrowthHigh GrowthCost-CuttingDiversificationExpansion100130170200-12050240300-25030300500

In risk management and decision-making, expected monetary value is a key idea. It entails…

Answered: The business manager of Tolkien…

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter5: Business And Economic Forecasting

Section: Chapter Questions

Problem 2E

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The business manager decides to access the latest macroeconomic predictions from the Bank of England. This provides him with the following probabilities: Recession (15%), Low Growth (30%), Medium Growth (35%), and High Growth (20%). Which option is preferred according to the expected monetary value (EMV) criterion? What attitude to risk does this represent?

The business manager of Tolkien Transport wishes to analyse three strategic options
available to the company (Cost-cutting; Diversification; Expansion) under four possible
UK macroeconomic conditions: Recession, Low Growth, Medium Growth and High
Growth. He has summarised available information in the following pay-off matrix (with
impact on company profits in the next year in £000s).
Macroeconomic Conditions
Medium Growth
Recession Low Growth
High Growth
Cost-Cutting
Diversification
Expansion
100
130
170
200
-120
50
240
300
-250
30
300
500

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