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Originally Posted by knukk
Assignment 6
You buy a computer for $1500 and do not use it for a year. Assume that you can and do sell it for $1500 after that year.
Question 1: What did the computer cost you?
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Inflation Rate, so if inflation is 3% I would lose $45
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Question 2: Generally, in your decision making, should you care about absolute or relative prices?
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Totally depends on the lifespan of your project and the item. Also if you are thinking about selling said item after you use it or not. In general electronics have issues with resale value...
I tend to go with absolute price. And if it matters I weigh it by projected ROI % - 30 (because I always tend to overestimate)
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Assignment 7
You are interested in a new niche you are wondering about Internet marketing a product in. Assume that the product's a priori probability for high demand (H) is 0.4. There is only high (H) and low (L) demand. You want to test the niche by PPC. The testing will give you an indication 'g' if the signal is good, and 'b' if the signal is bad. From your previous experience in testing new products in similar niches, the probability of a good indication is 60% given high demand, while the probability of a bad signal given low demand is 90%. Assume these measures are representable here too. If you decide to market the product you will have a 35 000 profits if there is high demand, and 5 000 profits if there is low demand. If you do not proceed in marketing the product your profits are 15 000 from other marketing activites, independent of the demand state for the product in question. Assume that you are risk neutral, i.e. you only care about expected profits. How much should you spend on testing the product in the niche?
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Working on this one...