Question

The owner of a small business is considering three options: buying a computer, leasing a computer,...

The owner of a small business is considering three options: buying a computer, leasing a computer, or getting along without a computer. Based on the information obtained from the firm’s accountant, the following payoff table (in terms of net profit) was developed:

State of Nature
Alternative S1 S2 S3
A1 4 2 5
A2 8 2 3
A3 3 4 6



Based on the probability for each state of nature in previous question(the probability for S1 to happen is twice of the probability of S2. Probability for S2 to happen is three times of S3). Which decision alternative should be selected based on expected payoff?

Select one:

a. Can’t be computed with the given information

b. A3

c. A1

d. A2

Homework Answers

Answer #1

Given data:

Alternative State of nature
S1 S2 S3
A1 4 2 5
A2 8 2 3
A3 3 4 6

probability for s1 happen =p1

probability for s2 happen = p2

probability for s3 happen= p3

p1=2p2

p2=3p3

p1=6p3

p1+p2+p3=1

6p3+3p3+p3=10

p3=0.1

P2=0.3

p1=0.6

Expected value = sum of pi*si

pi 0.6 0.3 0.1 Expected payoff value
Alternative State of nature
S1 S2 S3
A1 4 2 5 3.5
A2 8 2 3 5.7
A3 3 4 6 3.6

so maximum expected profit (payoff) value 5.7. its on alternative -2

so we decide A2 alternative as per maximum payoff

Option -D

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The owner of a small business is considering three options: buying a computer, leasing a computer,...
The owner of a small business is considering three options: buying a computer, leasing a computer, or getting along without a computer. Based on the information obtained from the firm’s accountant, the following payoff table (in terms of net profit) was developed: State of Nature Alternative S1 S2 S3 A1 4 2 5 A2 8 2 3 A3 3 4 6 Based on the probability for each state of nature in previous question(the probability for S1 to happen is twice...
Suppose a decision maker is considering three decision alternatives: A1, A2, and A3. Three potential states...
Suppose a decision maker is considering three decision alternatives: A1, A2, and A3. Three potential states of nature have been identified: S1, S2, and S3. The payoff for each combination of alternative and state of nature has been estimated and appears in the following payoff table: S1 S2 S3 A1 113 96 -65 A2 117 62 -52 A3 32 45 40 Calculate the regret (or opportunity loss) value for the combination of A2 and S2.
Problem 13-14 (Algorithmic) The following profit payoff table shows profit for a decision analysis problem with...
Problem 13-14 (Algorithmic) The following profit payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature: State of Nature Decision Alternative S1 S2 S3 d1 250 100 100 d2 200 100 150 The probabilities for the states of nature are P(s1) = 0.45, P(s2) = 0.25 and P(s3) = 0.3. What is the optimal decision strategy if perfect information were available? S1 : S2 : S3 : What is the expected value...
Problem 13-29 (Algorithmic) Three decision makers have assessed utilities for the following decision problem (payoff in...
Problem 13-29 (Algorithmic) Three decision makers have assessed utilities for the following decision problem (payoff in dollars): State of Nature Decision Alternative S1 S2 S3 d1 30 50 -30 d2 80 110 -100 The indifference probabilities are as follows: Indifference Probability (p) Payoff Decision maker A Decision maker B Decision maker C 110 1.00 1.00 1.00 80 0.95 0.80 0.85 50 0.85 0.70 0.75 30 0.75 0.55 0.60 -30 0.60 0.25 0.50 -100 0.00 0.00 0.00 Find a recommended decision...
Q1. A UL student wants to invest $100,000 for 1 year. After analyzing and eliminating numerous...
Q1. A UL student wants to invest $100,000 for 1 year. After analyzing and eliminating numerous possibilities, she has narrowed her choice to one of three alternatives: D1: Invest in a well-diversified portfolio of bonds; D2: Invest in a well-diversified portfolio of bonds and stocks; D3: Invest in a well-diversified portfolio of stocks. She believes that the payoffs associated with the alternatives depend on a number of factors, foremost among which are the new global trade frameworks. She concludes that...
Please read the article and answear about questions. Determining the Value of the Business After you...
Please read the article and answear about questions. Determining the Value of the Business After you have completed a thorough and exacting investigation, you need to analyze all the infor- mation you have gathered. This is the time to consult with your business, financial, and legal advis- ers to arrive at an estimate of the value of the business. Outside advisers are impartial and are more likely to see the bad things about the business than are you. You should...
Sign In INNOVATION Deep Change: How Operational Innovation Can Transform Your Company by Michael Hammer From...
Sign In INNOVATION Deep Change: How Operational Innovation Can Transform Your Company by Michael Hammer From the April 2004 Issue Save Share 8.95 In 1991, Progressive Insurance, an automobile insurer based in Mayfield Village, Ohio, had approximately $1.3 billion in sales. By 2002, that figure had grown to $9.5 billion. What fashionable strategies did Progressive employ to achieve sevenfold growth in just over a decade? Was it positioned in a high-growth industry? Hardly. Auto insurance is a mature, 100-year-old industry...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT