Refer to the Following:
a Firm Making Production Plans Believes

question 31

Multiple Choice

Refer to the following:
A firm making production plans believes there is a 30% probability the price will be $10, a 50% probability the price will be $15, and a 20% probability the price will be $20. The manager must decide whether to produce 6,000 units of output (A) , 8,000 units (B) or 10,000 units (C) . The following table shows 4 possible outcomes depending on the output chosen and the actual price.
$$\begin{array} { c c c c } & { \text { Prodi } ( \text { Loss } ) \text { when price is } } \\\hline \text { Prodiction } & \$ 10 & \$ 15 & \$ 20 \\\hline \text { G,000 } ( A ) & - \$ 200 & \$ 400 & \$ 1,000 \\\text { B,000 } ( B ) & - \$ 400 & \$ 600 & \$ 1,600 \\10,000 ( C ) & - \$ 1,000 & \$ 800 & \$ 3,000\end{array}$$
-For the above payoff matrix, suppose the manager has no idea about the probability of any of the three prices occurring. If the maximax rule is used how much will the firm produce?

• A) 6,000
• B) 8,000
• C) 10,000
• D) can't use this rule to make the decision

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Definitions:

Normal Population

A population distribution that follows a normal (bell-shaped) curve, indicating that the mean, median, and mode are equal.

Alternative Hypothesis

In statistical analysis, it suggests that there is a statistically significant relationship between variables, opposing the null hypothesis.

Sample Data

Data collected from a subset of a larger population, used to make inferences or predictions about the population as a whole.

SRS

Simple Random Sampling, a statistical method wherein each member of a population has an equal chance of being selected for the sample.