11 At the beginning of each year, an aircraft engine is in good, fair, or poor condition. It costs $500,000 to run a good engine for a year, $1 million to run a fair engine for a year, and $2 million to run a poor engine for a year. A fair engine can be overhauled for $2 million, and it immediately becomes a good engine. A poor engine can be replaced for

$3 million, and it immediately becomes a good engine. The transition probability matrix for an engine is as follows:

Good Fair Poor

The discount factor for costs is .9. What strategy minimizes expected discounted cost over an infinite horizon?

Transcribed Image Text:

Good .7 Fair 0 26 .1 .6 .4 Poor 0 0 1