it in class but confused how my professor got
them.
- Look At Answers I Got Already For Both A B C Went Over It In Class But Confused How My Professor Got Them 1b 7 5 Mill 1 (119.29 KiB) Viewed 29 times
1C. Profit for $6M guaranteed: 14(.5) + (-6)(.25)
+ (-6)(.25)= 4M
Profit for $10M guaranteed:
10(.5) +(10)(.25) +(0)(.25)= 7.5 M
So we take the $7.5 million
??
1. The Washington Unicorns have a great player, Jordan Michaels. If he plays, fans buy tickets and the club makes lots of money. If he does not play, profits fall off quite dramatically. They want to give him strong incentives to play. Of course, Michaels is also concerned that he might get injured and not be able to play. The injury, if it occurs would be private information and it would be impossible to write a contract where the payment depends upon the injury. The team is considering offering him a contract that pays him only if he plays. Negotiation with the agent indicates that Michaels would sign a $6 million guaranteed contract or one for $10 million if the payment were made only in the event that he played. The following table summarizes the strategic situation. You may notice from the payoffs that if he plays, he creates $20 million in value. Playing while moderately disabled imposes a cost of $2 million on him. Finally, he likes to play when healthy. That is fun for him.93 a. Compute the team's expected profits if they offer the $6 million guaranteed contract. Explain. b. Compute the team's expected profits if they offer the $10 million contingent contract. Explain. c. Which should the team offer?
play (14,6+fun) JM Healthy 50% (-6,6) don't play play (14,4) 6M for sure JM Mod. Disabled 25% Disabled 25% don't play (-6,6) W u (-6,6) play (10,10+fun) 10M If he plays Healthy 50% JM (0,0) don't play play Mod. Disabled 25% (10,8) JM Disabled 25% (0,0) don't play (0,0)