A businessman is planning to ship a used machine to his plant in another country. He would like to use it there for the next 4 years. He must decide whether to overhaul the machine before sending it. The cost of the overhaul is $3,300. If the machine fails when in operation in the other country, it will cost him $5,000 in lost production and repairs. He estimates the probability that it will fail at 0.57 if he does not overhaul it, and 0.1 if he does overhaul it. Answer parts a through c below. Neglect the possibility that the machine might fail more than once in the next 4 years. (a) Prepare a payoff matrix. + Π (Type an integer or decimal for each matrix element. Do not include the $ symbol in your answer.) (b) What should the businessman do to minimize his costs? Select the correct answer below and fill in the answer box to complete your choice. (Type integers or decimals.) OA. The businessman should not overhaul the machine so that he only loses $ B. The businessman should overhaul the machine so that he only loses $ (c) Find any dominated strategies. Select all that apply. A. Column 2 dominates column 1. C. Row 2 dominates row 1. E. There are no dominated strategies. Is there a saddle point? B. Column 1 dominates column 2. D. Row 1 dominates row 2.
A businessman is planning to ship a used machine to his plant in another country. He would like to use it there for the next 4 years. He must decide whether to overhaul the machine before sending it. The cost of the overhaul is $3,300. If the machine fails when in operation in the other country, it will cost him $5,000 in lost production and repairs. He estimates the probability that it will fail at 0.57 if he does not overhaul it, and 0.1 if he does overhaul it. Answer parts a through c below. Neglect the possibility that the machine might fail more than once in the next 4 years. (a) Prepare a payoff matrix. + Π (Type an integer or decimal for each matrix element. Do not include the $ symbol in your answer.) (b) What should the businessman do to minimize his costs? Select the correct answer below and fill in the answer box to complete your choice. (Type integers or decimals.) OA. The businessman should not overhaul the machine so that he only loses $ B. The businessman should overhaul the machine so that he only loses $ (c) Find any dominated strategies. Select all that apply. A. Column 2 dominates column 1. C. Row 2 dominates row 1. E. There are no dominated strategies. Is there a saddle point? B. Column 1 dominates column 2. D. Row 1 dominates row 2.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:A businessman is planning to ship a used machine to his plant in another country. He would like to use it there for the
next 4 years. He must decide whether to overhaul the machine before sending it. The cost of the overhaul is $3,300. If
the machine fails when in operation in the other country, it will cost him $5,000 in lost production and repairs. He
estimates the probability that it will fail at 0.57 if he does not overhaul it, and 0.1 if he does overhaul it. Answer parts a
through c below. Neglect the possibility that the machine might fail more than once in the next 4 years.
(a) Prepare a payoff matrix.
+
Π
(Type an integer or decimal for each matrix element. Do not include the $ symbol in your answer.)
(b) What should the businessman do to minimize his costs? Select the correct answer below and fill in the answer box to
complete your choice.
(Type integers or decimals.)
OA. The businessman should not overhaul the machine so that he only loses $
B. The businessman should overhaul the machine so that he only loses $
(c) Find any dominated strategies. Select all that apply.
A. Column 2 dominates column 1.
C. Row 2 dominates row 1.
E. There are no dominated strategies.
Is there a saddle point?
B. Column 1 dominates column 2.
D. Row 1 dominates row 2.
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