The Alternatives 1 and 2 in the Following Payoff Table

question 78

Short Answer

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt. The level of demand affects the success of both strategies. The states of nature (S_I) represent the levels of demand for the company products. s₁, s₂, and s₃ characterize high, medium, and low demand, respectively. The payoff values are in thousands of dollars. Prior probabilities are .3 for s₁; .6 for s₂, and .1 for s₃.
Find the expected monetary value for each of the alternatives and determine the best alternative (course of action) for the EKA manufacturing company using the expected monetary value criterion.

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