ECN-601 - Economics, Grand Canyon University, USA
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Question 1: Game Show Uncertainty
What is the lowest probability of a correct guess that would make playing profitable?
Answer: Playing of the Game
Since the contestants playing the game has 50% confidence in acquiring $1 million by winning.
50% confidence as well of losing the $500, 000 if they fail to win
To calculate the total gain after winning the game is as below
0.50 X (1,000,000) = 500,000
Total loss can be calculated as follows if they fail to win
0.50 X (500,000) = 250,000
Since the rate of winning rate is more (500,000 > 250,000) as compared to losing, it recommended for the contestants to play the game
The lowest Probability
Lowest probability of the guess which is correct let it be p
Hence success probability + failure probability needs to be >1
P (winning amount) + (1-p) (loosing amount) > 1
= p(2) + (1-p) (0.5) >1
= (2p + 0.5 - 0.5p) >1
= 1.5p - 0.5 >1
= p > 0.5
= P > 0.33
Therefore, the lowest probability of playing the game is 33% which makes playing of the game profitable
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Question 2: Hiring
What are the Type I and II decision error cost? Which decision error is more likely to be discovered by the CEO? How does this affect the HR manager's hiring decisions?
Answer: Type I and II decision error costs
Type I decision error costs made by Human Resource Manager: It occurs when the firm recruits an individual who fits the needs of the firm.
Type II decision error costs made by Human Resource Manager: provides an explanation of the opportunity lost on missing out a candidate who is suitable for a particular cost due to various reasons such as lack information and bearing overcautiously (attempt to minimize type I error).
Decision of the hiring managers are highly impacted due to the change of the action plan of recruiting and making adjustment and amendment on the budget terms financially based on the word of his or her Chief Executive Officer.
Question 3: Address the following decisions in your response (350 words)
1. What environmental factors and risks must be considered in the company's decision-making process?
2. Evaluate cost factors influencing the company's decision.
3. Determine strategies that would provide value to the outcome your company is seeking relating to this decision.
Answer: Making of decisions by businesses and organizations is always followed by uncertainty conditions. It is worth noting that, if the decision maker has more information about a certain issue, the better the decision he or she will make. In order for one operate with the parameters of the decision theory, it is important to compute the certain outcome and probability values which leads to the determination of the consequences of the choices made (Froeb et al., 2016).
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Computation of the expected benefits and costs of the decision
Cost benefit analysis is the making decisions logically on the basis of probable outcomes of different action courses. It is divided into the following steps:
1. Specification of the possible actions of the action. It needs to be mutually exclusive.
2. List all the outcomes which are possible for every option. Outcomes needs to me mutually exhaustive and exclusive.
3. Determination of the probability of every outcome of the options
4. Assigning a value whether negative or positive for each outcome for each of the options
5. The expected value of any option is obtained by the summation of the values multiplied by the probabilities of every option. Then select the best option which tends to maximize and optimize the value expected(Froeb et al., 2016).
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