Yesterday, lorinda overheard a surprisingly unpleasant encounter between the manager of the hardware store where she works and a sales rep who sells a well-known line of tools. the rep insisted that his tools should be more prominently displayed and that a better assortment would mean more sales. the manager had other plans and told him so, and the conversation turned into a loud argument. what lorinda observed was an example of

Your company is starting a new r& d initiative: a development of a new drug that dramatically reduces the addiction to smoking. the expert team estimates the probability of developing the drug succesfully at 60% and a chance of losing the investment of 40%. if the project is successful, your company would earn profits (after deducting the investment) of 9,000 (thousand usd). if the development is unsuccessful, the whole investment will be lost -1,000 (thousand usd). your company's risk preference is given by the expected utility function: u(x) v1000 +x, where x is the monetary outcome of a project. calculate the expected profit of the project . calculate the expected utility of the project . find the certainty equivalent of this r& d initiative . find the risk premium of this r& d initiative e is the company risk-averse, risk-loving or risk-neutral? why do you think so?