Given the pay-off table below showing the profit (present value Rs.in lakhs), a firm might expect in
Question:
Given the pay-off table below showing the profit (present value Rs.in lakhs), a firm might expect in a foreign country for three alternative factory investments (X, Y, and Z) under different levels of inflation. Economists have assigned probabilities of 0.2, 0.3, 0.4, and 0.1 to the possible inflation levels A, B, C and D, respectively. Find the preferred investment alternative using criteria of
(a) Maximax,
(b) Maximin,
(c) Laplace,
(d) Maximum probability, and
(e) Expected monetary value.
Finally,
(f) use your “judgment.”
State of nature: Amount of inflation A = 2% B = 5% C =10% D =15%
Build factory X 10 30 50 120 Build factory Y 40 50 60 70 Lease plant Z 10 40 80 10
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