. American Textile is considering expanding production to meet potential increases in demand for one of its popular bedding products. Americans alternatives are to construct a new plant, expand the existing plant, or do nothing in the short run. The market for this particular line may expand, remain stable, or contract. The table below contains estimated payoffs (in $000).

Assume that no probabilities are estimated for the potential market outcomes

Determine which alternative would be selected for each of these decision criteria:

i. Pessimistic/Maximin

ii. Optimistic/Maximax

iii. Equal Likelihood

. The marketing department has done some additional analysis and now estimates the probabilities of these market outcomes as 0.25 for expands, 0.35 for stable, and 0.40 for contracts.

i. Calculate the EMV for each alternative.

ii. What would you recommend to American if the EMV was used?

iii. Calculate the EV with PI and the EV of PI for this problem.

iv. How would you interpret the EV of PI?

	Potential Market outcomes
Decision alternatives	Market expands	Market stable	Market contracts
Construct New plant	400	75	50
Expand existing plant	250	150	75
Do nothing	50	50	30