The owner of a personal computer company is considering whether to install a large or a small new assembly line. The possible payoffs (in thousands of dollars)

depend on the state of the economy and are presented in the following table.

(a) Find the minimax regret solution.

(b) Find the expected payoff of installing a large assembly line when the probability of boom and the probability of recession are .3 and .7, respectively.

(c) If the beginning wealth of the company is 20 and the utility function of the owner is W^1/2, what is the expected utility of the two options?

Transcribed Image Text:

Size of assembly line Large Small Probability State Boom 20 10 .3 Recession 5 8 .7