A Family Business Is Considering Making an Investment in Its

question 1

Multiple Choice

A family business is considering making an investment in its manufacturing operation. Three decisions are under consideration: (1) a large investment; (2) a medium investment; and (3) a small investment. The business believes that there are three possible future outcomes for its product: (1) increasing demand; (2) stable demand; and (3) decreasing demand. The business believes that the probability for increasing, stable and decreasing product demand are 0.4, 0.5, and 0.1, respectively. The following payoff table describes the decision situation: If the expected value criterion is used then the best decision would be to

• A) make the large investment.
• B) make the medium investment.
• C) make the small investment.
• D) choose the stable demand.

---

Definitions:

Formal Operational

The final stage in Piaget's theory of cognitive development, characterized by the ability to think abstractly, logically, and to carry out systematic planning.

Concept of Conservation

A cognitive ability in child development whereby the child learns that quantity or amount does not change despite a change in the form or arrangement of objects.

Object Permanence

The understanding that objects continue to exist even when they cannot be observed or heard, a concept developed during early childhood.

Abstract Reasoning

The ability to analyze information, detect patterns and relationships, and solve problems on a complex, abstract level.