Question

suppose that there are three options facing a manager. he may either build a large plant for a value of $20,000 in profit, a small plant for $10,000 in profit or do nothing and make $3,000. what is the equally likely of the decision?

Answer 1

To determine the equally likely decision among three options, calculate the expected value for each option and choose the one with the highest expected value. In this case, the large plant has the highest expected profit of $11,000.

Step-by-step explanation:

The equally likely decision among the three options would be to calculate the expected value for each option and choose the one with the highest expected value. The expected value is calculated by multiplying each outcome by its probability and summing them up.

For the large plant, the profit is $20,000 with a probability of 1/3.

For the small plant, the profit is $10,000 with a probability of 1/3.

For doing nothing, the profit is $3,000 with a probability of 1/3.

To calculate the expected value: ($20,000 * 1/3) + ($10,000 * 1/3) + ($3,000 * 1/3) = $11,000

Therefore, the decision with the highest expected value is to build the large plant, which has an expected profit of $11,000.