Homework Help is Here – Start Your Trial Now!
Business
Operations Management
A firm has three investment alternatives. The payoff from each alternative (in thousand Ringgit) under each state of nature and its associated probabilities are as given in table below. Economic Condition Stable Up 75 Investment Down D1 50 25 D2 100 25 D3 50 50 50 Probabilities 0.3 0.5 0.2 a) Using the expected value approach, which investment is preferred? b) For the investment having a payoff of RM100,000 with probability p and RMO with probability (1 - p), two decision makers expressed the following indifference probabilities as given in table below. Indifference Probability (p) Decision Maker Decision Maker B Profit (RM) 75,000 50,000 25,000 A 0.9 0.7 0.6 0.5 0.2 0.3

A firm has three investment alternatives. The payoff from each alternative (in thousand Ringgit) under each state of nature and its associated probabilities are as given in table below. Economic Condition Stable Up 75 Investment Down D1 50 25 D2 100 25 D3 50 50 50 Probabilities 0.3 0.5 0.2 a) Using the expected value approach, which investment is preferred? b) For the investment having a payoff of RM100,000 with probability p and RMO with probability (1 - p), two decision makers expressed the following indifference probabilities as given in table below. Indifference Probability (p) Decision Maker Decision Maker B Profit (RM) 75,000 50,000 25,000 A 0.9 0.7 0.6 0.5 0.2 0.3

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
See similar textbooks
icon
Related questions
Question
Solve it all
A firm has three investment alternatives. The payoff from each alternative (in thousand Ringgit) under each state of nature and its associated probabilities are as given in table below. Economic Condition Stable Up 75 Investment Down D1 50 25 D2 100 25 D3 50 50 50 Probabilities 0.3 0.5 0.2 a) Using the expected value approach, which investment is preferred? b) For the investment having a payoff of RM100,000 with probability p and RMO with probability (1 - p), two decision makers expressed the following indifference probabilities as given in table below. Indifference Probability (p) Decision Maker Decision Maker B Profit (RM) 75,000 50,000 25,000 A 0.9 0.7 0.6 0.5 0.2 0.3 N53
Transcribed Image Text:A firm has three investment alternatives. The payoff from each alternative (in thousand Ringgit) under each state of nature and its associated probabilities are as given in table below. Economic Condition Stable Up 75 Investment Down D1 50 25 D2 100 25 D3 50 50 50 Probabilities 0.3 0.5 0.2 a) Using the expected value approach, which investment is preferred? b) For the investment having a payoff of RM100,000 with probability p and RMO with probability (1 - p), two decision makers expressed the following indifference probabilities as given in table below. Indifference Probability (p) Decision Maker Decision Maker B Profit (RM) 75,000 50,000 25,000 A 0.9 0.7 0.6 0.5 0.2 0.3 N53
Find the most preferred investment for each decision maker using the expected utility approach. c) Why decision makers A and B do not select the same decision alternative?
Transcribed Image Text:Find the most preferred investment for each decision maker using the expected utility approach. c) Why decision makers A and B do not select the same decision alternative?
Expert Solution
steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Recommended textbooks for you
Practical Management Science
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Business in Action
Business in Action
Operations Management
ISBN:
9780135198100
Author:
BOVEE
Publisher:
PEARSON CO
Purchasing and Supply Chain Management
Purchasing and Supply Chain Management
Operations Management
ISBN:
9781285869681
Author:
Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:
Cengage Learning
Production and Operations Analysis, Seventh Editi…
Production and Operations Analysis, Seventh Editi…
Operations Management
ISBN:
9781478623069
Author:
Steven Nahmias, Tava Lennon Olsen
Publisher:
Waveland Press, Inc.
SEE MORE TEXTBOOKS