Decision Sciences, please answer and/or correct all questions, thank you! Areal

Question

Decision Sciences, please answer and/or correct all questions, thank you!

Areal estate investor has the opportunity to purchase land currently zoned residential. If the county board approves a request to rezone the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. However, if the zoning change is not approved, the investor will have to sell the property at a loss. Profits (in thousands of dollars) are shown in the following payoff table: State of Nature Rezoning Rezoning Not Approved Approved Decision Alternative Purchase, d1 600 200 Do not purchase, d2 a. If the probability that the rezoning will be approved is 0.5, what decision is recommended? Recommended decision Purchase What is the expected profit? Expected profit thousands.

Explanation / Answer

Expected Profit= 600*0.5 + (-200)*0.5

=200 i.e. 200,000 dollars

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