Refer to the Following:
a Firm Is Considering the Decision $\text { The economy }$

question 6

Multiple Choice

Refer to the following:
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.
$\text { The economy }$
$\begin{array}{lccc} & \text { expands } & \text { contracts } & \text { unchanged } \\\hline \text { no new plants } & \$ 20 \text { million } & -\$ 3 \text { million } & \$ 4 \text { million } \\1 \text { new plant } & \$ 30 \text { million } & -\$ 6 \text { million } & \$ 6 \text { million } \\2 \text { new plants } & \$ 40 \text { million } & -\$ 12 \text { million } & \$ 8 \text { million }\end{array}$
-What decision would be made using the maximax rule?

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

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Definitions:

Automatization

The process by which tasks become automatic through repetition, requiring less cognitive effort over time.

Encoding

The process of converting information into a form that can be stored and retrieved later from memory.

Chunk Information

A strategy used to break down information into smaller, more manageable parts for easier understanding or recall.

Short-term Memory

The short-duration, limited-capacity memory component in which selected input from the memory store is worked on.