Question

The construction manager for acme construction, inc. must decide whether to build single family homes, apartments, or condominiums. he assumes that the probability of the population growing is 60%. this is not a product-mix problem, but an all-or-nothing decision. he will hire workers and rent equipment appropriate for one action only. he estimates annual profits will vary with population trends as follows:

Dwelling type Population steady Population growing
Single family 115 80
Apartments 162 56
Condominiums -20 110
What is the EMV of the best alternative?

Answer 1

The best construction alternative based on Expected Monetary Value (EMV) is apartments with an EMV of $98.4. This is calculated by considering the probability of population trends and the estimated profits for single family homes, apartments, and condominiums.

Step-by-step explanation:

The student is asking for the calculation of the Expected Monetary Value (EMV) for a construction project given the probabilities of population trends and the associated profits for different housing types. To calculate the EMV for each alternative, we multiply the profit of each outcome by the probability of that population trend occurring, and then add them together for each housing type.

For single family homes, the EMV calculation is as follows: (0.4 * $115) + (0.6 * $80) = $46 + $48 = $94.

For apartments, the EMV calculation is: (0.4 * $162) + (0.6 * $56) = $64.8 + $33.6 = $98.4.

For condominiums, the EMV calculation is: (0.4 * (-$20)) + (0.6 * $110) = -$8 + $66 = $58.

The best alternative is the one with the highest EMV, which is apartments with an EMV of $98.4.