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Context Risk  and uncertainty are often used interchangeably in everyday discuss

by | Nov 20, 2021 | Economics homework help | 0 comments

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Context
Risk  and uncertainty are often used interchangeably in everyday discussions,  but they are different, in business, two different concepts.  Risk describes a  situation in which we do not know the outcome, but we do know all the  possible outcomes and can assign probabilities to each of these outcomes  happening.  Risked can be managed.  Knowing the potential costs of  errors, allows managers to hedge and/and or insure against costly  outcomes.  For example, ever since you quarterback had shoulder surgery,  he only connects with the receiver one out of every four passes.  You  know that your kicker can score 80% of the time when your team is within  25 yards of the goal.  You can make the calculation.  Every time you  are within 25 years of the goal, an attempted pass will get .25*6 points  or the point payoff is 1.5 points. Versus the point payoff for a kick  is .80*3  or the point payoff is 2.4 points. You can make a plan for the  game.
Uncertainty is the situation  in which we do not know all the possible outcomes and, therefore, can’t  reasonably assign probability to outcomes.  Uncertainty is the unknown  factor(s) in decision making for managers.  Per the Warfighting Manual of the U.S, Marines,  Because we can never eliminate uncertainty, we must learn to fight  (manage) effectively despite it.  We do this by deploying simple,  flexible plans; planning for likely contingencies; developing standing  operating procedures; and fostering initiatives among subordinates.”  (See reference in the Welcome on this week’s page.) Two entirely new  teams have just joined the league.  They will play each other.  Someone  will win, but who? (Beware of false probability, each team does not  necessarily have an even chance of a win)
Assignment
Government  support for the development of Covid-19 vaccines took two different  forms.  Some firms accepted grants (a.k.a, direct monetary support) for  vaccine development and testing.  As a condition of the grant, the  government has options to purchase a first and specific number of  vaccine doses.  Other firms chose not to accept grants.  Instead they  negotiated advanced-purchase agreement to support pre-approval  manufacturing of vaccines.  The purchase agreement stipulates that  payment will be made upon delivery of the pre-specified number of doses.
You  are advising the CEO at the point in time when he/she must make to  decision to undertake the research and development of a covid-19  vaccine.  You know the CEOs job is to consider what is best for  shareholders.  The bottom line is all about profitability.
1.  Is the successful development and delivery of a vaccine for Covid-19 virus risky or an uncertainty? 
2.  In the case of direct support agreements, who bears the cost of failure?
3.  In the case of advanced purchase agreements, who bears the cost of a failure? 
4.   Pfizer was the first firm to have its vaccine authorized for use in the  U.S.  It did not accept a grant to support development and testing, but  the Pfizer did negotiate an advance-purchase agreement for $1.95  billion to support the manufacturing of 100 million doses.  Looking  back, what hidden information is revealed by Pfizer’s deal? 

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