A local real estate investor in Orlando is considering three alternative investments: a motel, arestaurant, or a theater. Profits from the motel or restaurant will be affected by the availability ofgasoline and the number of tourists; profits from the theater will be relatively stable under anyconditions. The following payoff table shows the profit or loss that could result from eachinvestment. Based on the Maximax criteria, the investor should chooseInvestmentMotelRestaurantTheaterMotelRestaurantO TheaterO Any of the threeShortage$-8,0002,0006,000Gasoline AvailabilityStable Supply$15,0008,0006,000Surplus$20,0006,0005,000 For the Orlando real estate investment problem, assume the probabilities for the gasoline shortage,stable supply and surplus are .5, .3 and .2, then compute the expected payoff of choosing restaurant,it is (type number only, no decimals, no dollar sign)

The maximax payoff criterion looks for the biggest possible reward for each action. The maximum…

Answered: A local real estate investor in Orlando…

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...

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Cheryl Druehl Retailers, Inc., must decide whether to build a small or a large facility at a new location in Fairfax. Demand at the location will either be low or high, with probabilities 0.6 and 0.4, respectively. If Cheryl builds a small facility and demand proves to be high, she then has the option of expanding the facility. If a small facility is built and demand proves to be high, and then the retailer expands the facility, the payoff is $290,000. If a small facility is built and demand proves to be high, but Cheryl then decides not to expand the facility, the payoff is $253,000. If a small facility is built and demand proves to be low, then there is no option to expand and the payoff is $220,000. If a large facility is built and demand proves to be low, Cheryl then has the option of stimulating demand through local advertising. If she does not exercise this option, then the payoff is $35,000. If she does exercise the advertising option, then the response to advertising will…

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