Nick has plans to open some pizza restaurants,but he is not sure how many to open.He has prepared a payoff table to help analyze the situation. As Nick does not know how his product will be received,he assumes that all three states of nature are equally likely to occur.If he uses the equally likely criterion,what decision would he make?
A)Open 1
B)Open 2
C)Good market
D)Fair market
E)Do nothing

Question

Nick has plans to open some pizza restaurants,but he is not sure how many to open.He has prepared a payoff table to help analyze the situation.  As Nick does not know how his product will be received,he assumes that all three states of nature are equally likely to occur.If he uses the equally likely criterion,what decision would he make?
A)Open 1 
B)Open 2 
C)Good market 
D)Fair market 
E)Do nothing

Quizplus · Accepted Answer

According to the equally likely criterion, Nick should choose the alternative with the highest expected value. The expected values for opening 1, 2, and 3 restaurants are $24,000, $32,500, and $32,000 respectively. The highest expected value is for opening 2 restaurants, so Nick should open 2 restaurants.

Nick Has Plans to Open Some Pizza Restaurants,but He Is