Expert Answer :EC 451 – There are three possible outcomes

Solved by a verified expert :You are a risk-neutral person whose net worth is $450,000. You are thinking about opening adonut franchise, which will require an initial investment of $150,000. If you go ahead, theprobability is p1that you will make $500,000, p2that you will break even, and p3that you willlose the entire investment. (Note: It is assumed that there are no other possibilities, so p1+ p2+ p3= 1.)(a) There are three possible outcomes. Calculate your net worth at each of them.(b) Assume that p1= 0.1, p2= 0.4, and p3= 0.5. Use tabular form to express theprobabilities of the various possible values ofnet worth as consequences of your twopossible courses of action. (Each course of action should be a row in the table.) What is the best decision?(C) Write the tabular form of the decision problem in general (i.e. using letters for p1, p2,and p3 instead of numbers.) By substituting p3 ? 1? p2 ? p3 , find a general conditionon p1 and p2 that is necessary and sufficient for you to be willing to invest in thefranchise.