Read aloud 1 of 1 D Problem 1 A local real estate investor in Orlando is considering three alternative investments: a motel, a res- taurant, or a theater. Profits from the motel or restaurant will be affected by the availability of gasoline and the number of tourists; profits from the theater will be relatively stable under any con- ditions. The following payoff table shows the profit or loss that could result from each investment: Gasoline Availability Investment Shortage Stable Supply Surplus Motel Restaurant S-8.000 $15,000 $20,000 2,000 8.000 6,000 Theater 6,000 6.000 5.000 Determine the best investment, using the following decision criteria. a Maximas b. Maximin c. Minimax regret d. Hurwicz (a = 4) e. Equal likelihood Problem 2 The Miramar Company is going to introduce one of three new products: a widget, a hummer, or a nimnot. The market conditions (favorable, stable, or unfavorable) will determine the profit or loss the company realizes, as shown in the following payoff table: Market Conditions Favorable Stable Unfavorable Product .2 .7 .1 Widget Hummer $120,000 $70,000 $-30,000 60,000 40,000 20,000 Nimnot 35,000 30.000 30,000 a. Compute the expected value for each decision and select the best one. b. Develop the opportunity loss table and compute the expected opportunity loss for each product. c. Determine how much the firm would be willing to pay to a market research firm to gain better information about future market conditions. #3 SA Q Search 4 % 5 f6 17 & E R T Y T G H 10 19 B 144 00 K