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:

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A geological period approximately 541 million years ago, marked by a rapid diversification of life forms and the appearance of many of the major groups of organisms.

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The geological period approximately 635 to 541 million years ago, preceding the Cambrian, known for its distinct soft-bodied fauna.

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Substances produced by plants, algae, and certain bacteria to absorb sunlight and convert it into chemical energy during photosynthesis.