The following payoff matrix shows the various profit outcomes for 3 projects,A,B,and C,under 2 possible states of nature: the product price is $10 or the product price is $20. $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Profit }$
$\begin{array}{c}
\begin{array}{c}
\text { Project } \
\text { A } \
\text { B }\
\text { C}
\end{array}
\begin{array}{|c|}
\hline P=\$ 10 \
\hline 20 \
\hline 40 \
\hline-26 \
\hline
\end{array}
\begin{array}{c|}
\hline P=\$ 20 \
\hline 80 \
\hline 60 \
\hline 140 \
\hline
\end{array}
\end{array}$
Using the maximax rule,the decision maker would choose
A)A.
B)B.
C)C.
D)impossible to say from the information given

Question

The following payoff matrix shows the various profit outcomes for 3 projects,A,B,and C,under 2 possible states of nature: the product price is $10 or the product price is $20.  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Profit }$
$\begin{array}{c}
\begin{array}{c}
\text { Project } \
\text { A } \
\text { B }\
\text { C}
\end{array}
\begin{array}{|c|}
\hline P=\$ 10 \
\hline 20 \
\hline 40 \
\hline-26 \
\hline
\end{array}
\begin{array}{c|}
\hline P=\$ 20 \
\hline 80 \
\hline 60 \
\hline 140 \
\hline
\end{array}
\end{array}$
 Using the maximax rule,the decision maker would choose
A)A.
B)B.
C)C.
D)impossible to say from the information given

Quizplus · Accepted Answer

The maximax rule selects the decision with the maximum possible payoff for each project and then selects the project with the maximum of these maximum payoffs. For Project A, the maximum payoffs are 20 and 80. For Project B, the maximum payoffs are 40 and 60. For Project C, the maximum payoffs are -26 and 140. Therefore, the maximum payoffs for the three projects are 80, 60, and 140, and the maximum of these is 140, which corresponds to Project C. Therefore, the decision maker would choose Project C under the maximax rule.

The Following Payoff Matrix Shows the Various Profit Outcomes for 3