The construction manager for Acme Construction,Inc.must decide whether to build single family homes,apartments,or condominiums.This is not a product-mix problem,but an all-or-nothing decision.He will hire workers and rent equipment appropriate for one action only.He estimates annual profits (in thousands of dollars)will vary with population trends as follows:
a.If he uses the maximin criterion,which type of dwellings will he choose to build? Show your supporting calculations.
b.If he uses the equally likely criterion,which kind of dwellings will he choose to build? Show your supporting calculations.
c.If the construction manager were an optimist,what criterion would he choose? What would be the choice of dwelling for that criterion? Show your supporting calculations.
Definitions:
Intrinsic Value
The actual, fundamental worth of an asset or investment, determined through financial analysis independent of current market value.
Time Value
The concept that money available now is worth more than an identical sum in the future due to its potential earning capacity.
Strike Price
The predetermined price at which the holder of an option can buy (call) or sell (put) the underlying asset.
Market Price
The current price at which an asset or service can be bought or sold.
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