Question

In: Economics

For the following scenario, at the end of which year should you replace the defender? Defender;...

For the following scenario, at the end of which year should you replace the defender?
Defender;
EUAC 1: 9,102, EUAC 2: 6,414, EUAC 3: 6,822, EUAC 4: 9,991.
TC 1: 9,102, TC 2: 6,012, TC 3: 6,391, TC 4: 10,682.
Challenger
EUAC 1: 8,162, EUAC 2: 8,869, EUAC 3: 9,843, EUAC 4: 9,002.

Please solve carefully!

Solutions

Expert Solution

From Given information we have a schedule of TC

From the behaviour of TC

1) If TC is showing decreasing trend then in that period lowest EUAC of defender is compared with lowest EUAC of challenger and if Lowest EUAC of challenger< Lowest EUAC of Defender then defender must be replaced with Challenger

We have TC decreasing for 2 years but lowest EUAC of defender is higher than lowest EUAC of challenger hence defender cant be replaced until the year 2

2) When TC shows an increasing trend if EUAC of challenger is less than that of TC then only Defender will be replaced with Challenger

Here in year from 3 to 4 we see TC is increasing from 6391 to 10682

EUAC of challenger in year 3(9843) is greater than TC hence defender cannot be replaced until year 3 but in year 4 EUAC of challenger in eayr 4 is 9002 < TC in year 4 is (10682)

Hence as per the rule regarding TC defender will be replaced at the end of year 4


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