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:
Consumer Surplus
The difference between the total amount consumers are willing to pay for a good or service and the total amount they actually pay.
Graphing Calculator
A handheld device capable of plotting graphs, solving simultaneous equations, and performing other tasks with variables.
Consumer Surplus
The deviation between consumers’ anticipated payment for a product or service and the eventual price paid.
Demand Curve
A graphical representation showing the relationship between the price of a good and the quantity demanded by consumers at each price level.
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