Page 287 - P1 Integrated Workbook STUDENT 2018

Supplementary objective test questions

CHAPTER 11– RISK AND UNCERTAINTY

5.1 Which of the following is not a disadvantage of using expected value
techniques?

A Outcomes and associated probabilities are objectively measured

B The expected value represents the long run average return and the
technique should not be used for one-off decisions

C It ignores the investor’s attitude to risk

D The expected value may not be a possible actual outcome

5.2 An outside caterer, who provides hot meals, is forecasting sales for an
upcoming music festival.

The number of meals sold will depend on whether it is rainy or sunny. If it is
rainy the caterer expects to sell 2,000 meals. If it is sunny then demand will be
for only 800 meals. The probability of sunny weather is 0.6.

The expected value for the number of meals to be sold at the music
festival is _________________

(Your answer should be rounded to the nearest the nearest full number)

5.3 A baker has prepared the following payoff table based on expected levels of
demand each day and the number of cakes produced:

Cakes baked
Demand 20 30 40 50
20 $400 $140 $(140) $(400)

30 $400 $600 $300 $80
40 $400 $600 $800 $500
50 $400 $600 $800 $1,000

Using a maximin criteria, how many cakes should be baked each day?

A 20

B 30

C 40

D 50

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