Question

Nick has plans to open some pizza restaurants, but he is not sure how many to open. He has prepared a payoff table to help analyze the situation.

	State of nature
Alternaives	Good Market	Fair Market	Poor Market
Open 1	380,000.00	70,000.00	-400,000
Open 2	200,000.00	80,000.00	-200,000
Do Nothing	0	0	0

Nick believes there is a 40 percent chance that the market will be good, a 30 percent chance that it will be fair, and a 30 percent chance that it will be poor. A market research firm will analyze market conditions and will provide a perfect forecast (they provide a money back guarantee). What is the most that should be paid for this forecast?

Choose one answer.

	a. $55,000
	b. $123,000
	c. $44,000
	d. $132,000

Answer 1

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