At the present time, Ken is forced to consider purchasing some more equipment for Brown Oil because of competition. His alternatives are shown in the following table:

For example, if Ken purchases a Sub 100 and if there is a favorable market, he will realize a profit of $300,000. On the other hand, if the market is unfavorable, Ken will suffer a loss of $200,000. But Ken has always been a very optimistic decision maker.

(a) What type of decision is Ken facing?

(b) What decision criterion should he use?

(c) What alternative is best?

Transcribed Image Text:

FAVORABLE UNFAVORABLE MARKET MARKET EQUIPMENT ($) ($) Sub 100 300,000 -200,000 Oiler J 250,000 -100,000 Texan 75,000 -18,000