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A family business is considering making an investment in its manufacturing operation. Three decisions are under consideration: (1) a large investment; (2) a medium
A family business is considering making an investment in its manufacturing operation. Three decisions are under consideration: (1) a large investment; (2) a medium investment; and (3) a small investment. The business believes that there are three possible future outcomes for its product: (1) increasing demand; (2) stable demand; and (3) decreasing demand. The following payoff table describes the decision situation. States of Nature Decision Increasing Demand Stable Demand Decreasing Demand Large Investment. $1,000,000 $400,000 -$600,000 ructional ey Medium Investment 500,000 300,000 -200,000 ton Small Investment 250,000 125,000 25,000 out-Out ist ourse The best decision for the business using the Hurwicz criterion with a coefficient of optimism equal to 0.80 would be to O make the small investment Omake the medium investment 000 make the large investment choose stable demand
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