A Firm Is Considering the Decision of Investing in New $$\text { The econdmy }$$

question 53

Multiple Choice

A firm is considering the decision of investing in new plants.The following is the profit payoff matrix under three conditions: it does not expand,it builds two new plants,or it builds one new plant.Three possible states of nature can exist--no change in the economy,the economy contracts and the economy grows.The firm has no idea of the probability of each state. $$\text { The econdmy }$$
$\begin{array}{l|ccc}& \text { expands } & \text { contracts } & \text { unchanged } \\\text { no new plants } & \$ 20 \text { million } & -\$ 3 \text { million } & \$ 4 \text { million } \\1 \text { new plant } & \$ 30 \text { million } & -\$ 6 \text { million } & \$ 6 \text { million } \\2 \text { new plants } & \$ 40 \text { million } & -\$ 12 \text { million } & \$ 8 \text { million }\end{array}$ What decision would be made using the minimax regret rule?

• A)no new plants
• B)one new plant
• C)two new plants
• D)not enough information to tell

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