Gasoline Prices Theater Motel Restaurant Day Spa Gift Shop A local real estate i
ID: 3431722 • Letter: G
Question
Gasoline Prices
Theater
Motel
Restaurant
Day Spa
Gift Shop
A local real estate investor in Orlando is considering five alternative investments: a day spa, a theater, a restaurant, a motel, or a gift shop. Profits from the day spa, theater, gift shop or restaurant will be affected by the cost of gasoline; profits from the restaurant will be relatively stable under any condition.The following payoff table shows the profit or loss that could result from each investment. Determine the best investment using a pessimistic criterion.
Gasoline Prices
Investment Decisions Increase.30 Stable
.60 Decrease
.10 Day Spa $-3,000 $14,000 $19,000 Gift Shop $-8,000 $15,000 $20,000 Motel $7,000 $8,000 $10,000 Restaurant $6,000 $6,000 $6,000 Theater $-6,000 $22,000 $18,000 Answers:
Theater
Motel
Restaurant
Day Spa
Gift Shop
Explanation / Answer
Ans:
Pessimistic approach is maximin approach i.e. we maximize the worst payoffs
Maximum of worst payoff is 7000,which is paid off by Motel.
Correct option is Motel.
Investment Decisions Increase Stable Decrease Worst payoff 0.3 0.6 0.1 Day Spa (-3000) 14000 19000 -3000 Gift Shop (-8000) 15000 20000 -8000 Motel 7000 8000 10000 7000 Restaurant 6000 6000 6000 6000 Theater (-6000) 22000 18000 6000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.