A Manager Has Learned That Annual Profits from Four Alternatives

question 52

Essay

A manager has learned that annual profits from four alternatives being considered for solving a capacity problem are projected to be $15,000 for A, $30,000 for B, $45,000 for C, and $60,000 for D if state of nature 1 occurs; and $60,000 for A, $80,000 for B, $90,000 for C, and $35,000 for D if state of nature 2 occurs.
(A) Assuming maximax is used, what alternative would be chosen?
(B) Assuming maximin is used, what alternative would be chosen?
(C) If P(State of Nature 1) is .40, what alternative has the highest expected monetary value?
(D) Determine the range of P(S2) for which each alternative would be optimal.

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Definitions:

Great Society

A set of domestic programs in the United States, launched by President Lyndon B. Johnson, aimed at eliminating poverty and racial injustice.

Privatization

The process of transferring ownership of a business, enterprise, agency, or public service from the government to private individuals or organizations.

Market-Based Reform

Changes or improvements to policies or practices that are guided by the principles of free market competition.

Social Regulation

Rules imposed by government to correct market failures and improve the social welfare, often relating to health, safety, and the environment.