A manager has compiled estimated profits for various capacity alternatives but is reluctant to assign probabilities to the states of nature. The payoff table is as follows:

STATE OF NATURE

#1 #2 A $ 20* 140 Alternative B 120 80 C 100 40

*Profit in $ thousands.

a. Plot the expected-value lines on a graph.

b. Is there any alternative that would never be appropriate in terms of maximizing expected profit? Explain on the basis of your graph.

c. For what range of P(2) would alternative A be the best choice if the goal is to maximize expected profit?

d. For what range of P(1) would alternative A be the best choice if the goal is to maximize expected profit?

 LO.1