Question

Mr. Conrado Aristi faces the following decision: The National Medical Federation wanted to use his hotel for the annual professional congress; they would absorb practically all the facilities of the hotel (therefore, the businesses of other units would be negligible) and would pay US $ 20,000 for this use. Ordinarily, the hotel does business for $ 10,000 during the time this congress is held; however, there is an opportunity for the World Ballet to appear in the city at this time, and in this case the hotel would make a business of US $ 50,000. Should Mr. Conrado Aristi accept or decline the offer of the Medical Federation with the In order to maximize the minimum business you expect.

Answer 1

Ordinarily Mr Conrado makes $10,000 for his hotel.

If he lets the National Medical Federation use it he would make $20,000

However there is a chance of the world ballet appearing in which case he would make $50,000

See chance means there is a probability that it can happen and also a probability that it won't happen.

So we have two cases:

1. Does not let the national medical federation use the hotel Hoping that ballet occurs, so his payoffs will be 50000, 10000 respectively if ballet occurs and If ballet does not occur. His minimum profit here would be 10000.

2. Let's the medical federation use it and then the payoff will be 20000.

So maximum of the minimum business is in case 2 of $20000 when he lets the National Medical Federation use his hotel.

So yes, Mr. Conrado should accept the offer to maximize the minimum business.