Question

The following is a payoff table giving profits for various situations. State 2 State 1 State 3 Probability 0.35 0.4 0.25 Alternative 1 52 42 75 Alternative 2 58 30 83 Alternative 3 23 55 82 Alternative 4 33 55 44 If a person were to use the expected monetary value criterion, what decision would be made? Alternative 1 Alternative 2 Alternative 3 Alternative 4

Answer 1

ANSWER IS ALTERNATIVE 1.

New Microsoft Excel Worksheet - Microsoft Excel VIEW REVIEW General DX OB92. FILE HOME INSERT PAGE LAYOUT FORMULAS DATA Cut Calibri 1 A A == En Copy Paste * Format Painter BIU. 3. A. === Clipboard Fonto P39 : x fo * Wrap Text Merge & Center - € $ %, 88 Insert Delete F Conditional Format as Formatting Table Styles Cell Styles Alignment Number Cells 4 Ав DEF payoff Calculation of Best Alternative using Expected monetary value criterion Expected Expected Probability Alternative 1 Alternative 2 Alternative 3 Particulars payoff payoff (a) (b) (a*b) (C) (a*c) L (d) State 1 0.35 52 18.2 58 20.3 23 State 2 0 .4 42 16.8 30 55 State 3 0 .25 75 18.75 83 20. 75 82 82 Total Payoff 53.75 53.05 Expected Expected Alternative 4 payoff (a*d) (e) (a*e) 8.05 33 11.55 22 552122 20.5 4411 50.55 44.55 12 55 Conclusion: Alternative 1 is providing the highest payoff, Hence it should be opted. 39 Sheet1 Sheet2 Sheet4 Sheet3 READY