3. The following payoff matrix shows the profit outcomes for three projects, A,

Question

3. The following payoff matrix shows the profit outcomes for three projects, A, B, and C, for each of two possible product prices. There is a 60% probability the price will be $10 and a 40% probability the price will be $20.

Profit

Project P = $10 P = $20

A 20 80

B 40 60

C 26 140

Using the maximum expected value rule a decision maker would choose

a. A.

b. B.

c. C.

d. impossible to tell from the information

Using coefficient of variation rule a decision maker would choose

a. A.

b. B.

c. C.

d. can't use this rule under these circumstances

3. The following payoff matrix shows the profit outcomes for three projects, A, B, and C, for each of two possible product prices. There is a 60% probability the price will be $10 and a 40% probability the price will be $20. Profit Project P = $10 P = $20 A 20 80 B 40 60 C 26 140 Using the maximum expected value rule a decision maker would choose a. A. b. B. c. C. d. impossible to tell from the information Using coefficient of variation rule a decision maker would choose a. A. b. B. c. C. d. can't use this rule under these circumstances

Explanation / Answer

1) Option C

The maximum expected value is $14o therefore

2) Option B

Because this option have least variation

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