- 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
no new plants
1 new plant
2 new plants
-$ 3 million
-$ 6 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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Oct 14, 2020EXPERT
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