Question: Managerial Economics: Making decisions with uncertainties

17-1 Global Expansion

You are the manager of global opportunities for a US manufacturer, who is considering expanding sales into Asia. Your market research has identified the market potential in Malaysia, Philippines and Singapore as described next:

  success Level
Big Mediocre Failure
Probability 0.3 0.3 0.4
Units 1,200,000 600,000 0
probability 0.3 0.5 0.2
Units 1,000,000 320,000 0
probability 0.7 0.2 0.1
Units 700,000 400,000 0


The product sells for $10 and has unit cost of $8. If you can enter only one market, and the cost of entering the  (regardless of which market you select) is $250,000, should you enter one of these markets? (Show how arrive at your decision). If so which one? If you enter what is your expected profit?

17.2 Game show uncertainty

In the final round of a TV game show, contestants have a chance of increasing their current winnings of $1 million to $2million. If they are wrong, their price is decreased to $500,000. A contestant thinks his guest will be right 50% of the time. Should he play? What is the lowest probability of a correct guess that will make playing profitable?

19.3 Bicycle insurance and information asymmetry

You sell bicycle theft insurance. If bicycle owners do not whether they are high or low risk consumers? Is there an adverse selection problem?

20.3 Locator Beacon for lost Hikers

Light weight personal locator beacons are now available to hikers that make it easier for the Forest Service’s rescue teams to locate those lost or in trouble in the wilderness. How will this affect the cost that the Forest service incurs?