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Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his university teaching job, Ken has been able to increase his annual salary

Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his university teaching job, Ken has been able to increase his annual salary by a factor of over 100. 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:

Equipment

Favorable Market ($)

with probability 70%

Unfavorable Market ($)

with probability 30%

Sub 100 300,000 200,000
Oiler J 250,000 100,000
Texan 75,000 18,000

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.

Although Ken Brown is the principal owner of Brown Oil, his brother Bob is credited with making the company a financial success. Bob is vice president of finance. Bob attributes his success to his pessimistic attitude about business and the oil industry.

If Bob would want to base his decision on the Maximin criterion, then which equipment would he choose?

O A.Sub 100
O B.Oiler J
O C.Texan
O D.The same as his brother Ken's choice

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