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The Question
- A firm is considering the decision of investing in new plants. The following is the profit payoff matrix under three conditions: it does not expand, it builds two new plants, or it builds one new plant. Three possible states of nature can exist--no change in the economy, the economy contracts and the economy grows. The firm has no idea of the probability of each state.
| State of Economy | ||
| expands | contracts | unchanged |
no new plants 1 new plant 2 new plants | $20 million $30 million $40 million | -$ 3 million -$ 6 million -$12 million | $4 million $6 million $8 million |
Which option would the firm choose under each of the following rules?
a. Maximax rule _________________________________________________
b. Maximin rule __________________________________________________
c. Minimax regret rule _________________________________________________
d. Equal probability rule _________________________________________________
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Solution #00070310
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STATUSAnswered
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DATE ANSWEREDOct 14, 2020
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