There are three equally likely states of nature (High, Medium, and Low demand). If the large factory will post profits of $50,000, $25,000, and - $10,000 under these states of nature, respectively, what is the EMV of the factory?
A) $50,000
B) $25,000
C) $28,333.33
D) $21,666.67
E) $2,166.67

Question

Quizplus · Accepted Answer

The EMV (Expected Monetary Value) is calculated by multiplying each outcome by its probability and summing the results: (1/3 * $50,000) + (1/3 * $25,000) + (1/3 * -$10,000) = $21,666.67.

There Are Three Equally Likely States of Nature (High, Medium