Question

A construction company is faced with three possible choices: to undertake Project A or B or...

A construction company is faced with three possible choices: to undertake Project A or B or to do nothing. The following table shows the profit/loss payoffs under three different states of nature.

High Demand

Medium Demand

Low Demand

Project A

$10,000,000

$5,000,000

-$10,000,000

Project B

$6,000,000

$2,000,000

-$3,000,000

No Project

$0

$0

$0

The probabilities of high demand, medium demand and low demand occurring are respectively 0.2, 0.6 and 0.2.


Using the Expected Monetary Value technique, rank the three options in order of preference.

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