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Managerial Economics · End Term · 10 May 2026 · January 2026 term · Set 1-2

Question 21: Consider two investment opportunities in new products: g…

Question 21

+2 marksOne or more correct options

Consider two investment opportunities in new products: gourmet marmite and gourmet honey. People might either really like or really dislike the gourmet marmite, so it generates a payoff of $0.5 with 30 percent probability, a payoff of $1 million with 40 percent probability and a payoff of $1.5 million with 30 percent probability. The gourmet honey is less likely to either really turn people off or really turn them on, so it has a payoff of $0.5 million with 20 percent probability, $1 million with 60 percent probability and $1.5 million with 20 percent probability.
Based on the above data, answer the given subquestions.

Select all that apply.

  1. A

    Expected utility of investing in gourmet marmite is more than expected utility of investing in gourmet honey

  2. B

    A risk averse decision maker prefers investing in gourmet honey to investing in gourmet marmite

  3. C

    Expected utility of investing in gourmet marmite is less than expected utility of investing in gourmet honey

  4. D

    A risk averse decision maker prefers investing in gourmet marmite to investing in gourmet honey

Show answer

Correct answers

  • B

    A risk averse decision maker prefers investing in gourmet honey to investing in gourmet marmite

  • C

    Expected utility of investing in gourmet marmite is less than expected utility of investing in gourmet honey

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Question 21 of 36 in the IIT Madras BS Managerial Economics (Managerial Economics) End Term paper sat on 10 May 2026, in the January 2026 term (Managerial Economics 06 May 26). It carries 2 marks.

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