Alternatives 1 and 2 in the Following Payoff Table Represent

question 14

Multiple Choice

Alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_I) represent the levels of demand for the company products.S₁,S₂,and S₃ characterize high,medium,and low demand,with probabilities of .3,.6,and .1,respectively.The payoff values are in thousands of dollars. $\begin{array}{lccc} &&\underline{{\text { States of nature }}} \\& s_{1} & s_{2} & s_{3} \\\text { Alternative (strategy) } 1 & 110 & 80 & 70 \\\text { Alternative (strategy) } 2 & 60 & 120 & 50\end{array}$


The management believes that the weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports show 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.What is the maximum amount that the company would be willing to pay for perfect information?

• A)$95,000
• B)$112,000
• C)$7,000
• D)$24,000
• E)$17,000

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Definitions:

Exported

Products or services that are transported from one nation to another for the purpose of being sold or traded.

Producer Surplus

The difference between the amount producers are willing to sell a good for and the actual amount received from the sale of that good.

Tariff

A tax imposed by a government on imported goods.

Restrictions

Limitations or regulations imposed to control or limit certain actions or activities within a specific context.