The Following Payoff Table Shows Profits for Two Decision Alternatives

question 27

Essay

The following payoff table shows profits for two decision alternatives under three different states of nature.It is known that the probability of the occurrence of state of nature 1 is 0.1.

a.What should the probabilities of states of natures 2 and 3 be so that the expected values of the two decision alternatives equal one another?
b.Determine the expected values.

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Definitions:

Equilibrium Level

The state in which market supply and demand balance each other, resulting in stable prices.

Total Costs

The sum of all expenses a firm incurs to produce and sell a product, including both fixed and variable costs.

Short Run

A time period in which at least one input (e.g., plant size, machinery) in the production process is fixed and cannot be changed.

Equilibrium Price

Equilibrium price is the price at which the quantity of goods supplied is equal to the quantity of goods demanded, achieving a state of market balance.