CASE 4: A firm is facing three different state of nature (high, moderate and low competition). The probability distribution and the returns under the different state of nature for the two decision alternatives (increasing price or reducing price) are known and given below:

State of nature

Probability (P_i)

Profit

Price increase

High competition

0.20

1450

Moderate competition

0.40

1400

Low competition

0.40

1350

Price decrease

High competition

0.20

1500

Moderate competition

0.40

1340

Low competition

0.40

1300

i.What should be the decision of the manager (Increasing price or reducing price) based on expected values? (10 points).