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A firm has to decide which one of the three locations is the best to open...

A firm has to decide which one of the three locations is the best to open a new branch. The profitability of each location is affected by the economic conditions and the economic conditions may go up, remain stable or go down with different probabilities. The decision problem faced by the firm is presented in the form of a payoff table as shown below:

States

of

Nature

Up (0.5)

Stable (0.3)

Down (0.2)

Decision Alternatives

s 1

s 2

s 3

Location A

d 1

$100,000

$30,000

$0

Location B

d 2

$80,000

$55,000

$25,000

Location C

d 3

$55,000

$55,000

$55,000

  
What is the maximum expected value and the optimal decision if a maximum expected value approach is used?


A.

$59,000 & Location A
B.

$61,500 & Location B
C.

$61,500 & Location C
D.

$55,000 & Location C
E.

$61,500 & Location A.
Math   Statistics-And-Probability   
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