A Manager Has Learned That Annual Profits from Four Alternatives

question 14

Short Answer

A manager has learned that annual profits from four alternatives being considered for solving a capacity problem are projected to be $15,000 for A, $30,000 for B, $45,000 for C, and $60,000 for D if state of nature 1 occurs; and $60,000 for A, $80,000 for B, $90,000 for C, and $35,000 for D if state of nature 2 occurs.

(i) If P(State of Nature 1) is .40, what alternative has the highest expected monetary value?
(ii) Determine the range of P(S2) for which each alternative would be optimal.

(i) Max EMV is C ($72)
(ii) Refer to the diagram, above.

Ranges:

D is optimal from 0 < .214
C is optimal from > .214 to 1.00

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