Managerial Economics

Read the followin” rel=”nofollow”>ing fictional scenario and write a report that addresses the questions shown below:The managin” rel=”nofollow”>ing director of a Belgian outdoor caterin” rel=”nofollow”>ing company has to decide whether or not to lease new capital equipment. She knows that the demand for their services will depend on the situation in” rel=”nofollow”>in the macroeconomy in” rel=”nofollow”>in Belgium. The possible outcomes are summarised in” rel=”nofollow”>in this contin” rel=”nofollow”>ingency table:
Demand Conditions Probability Leasin” rel=”nofollow”>ing No leasin” rel=”nofollow”>ing
Profit Utility Profit Utility
Above normal 0.25 80 92 60 76
Normal 0.50 50 40 34 60
Below normal 0.25 0 0 20 20
Profits are measured in” rel=”nofollow”>in 000s of € and Utility is measured in” rel=”nofollow”>in 000s of Utils.

1. Explain” rel=”nofollow”>in what is meant by the term ‘expected profit’. What would the expected profit from each decision?
2. Explain” rel=”nofollow”>in what is meant by the term ‘expected utility’. What would be the expected utility from each decision?
3. How would the decision whether to lease new equipment be in” rel=”nofollow”>influenced by the managin” rel=”nofollow”>ing director’s attitude towards risk?
4. What methods are available to the managin” rel=”nofollow”>ing director to reduce the risk in” rel=”nofollow”>involved in” rel=”nofollow”>in this decision?

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