TABLE 19-1
The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature.
-Referring to Table 19-1, if the probability of S1 is 0.5, then the expected profit under certainty (EPUC) is
A) 3.
B) 5.
C) 8.
D) 11.

Question

TABLE 19-1
The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature. 
-Referring to Table 19-1, if the probability of S1 is 0.5, then the expected profit under certainty (EPUC) is
A) 3. 
B) 5. 
C) 8. 
D) 11.

Quizplus · Accepted Answer

The expected profit under certainty (EPUC) is calculated by taking the weighted average of the profits, where the weights are the probabilities of the states. If the probability of S1 is 0.5, the EPUC is calculated as 0.5 * Profit(S1) + 0.5 * Profit(S2). Assuming Profit(S1) is 11, the EPUC is 11.

TABLE 19-1 The Following Payoff Table Shows Profits Associated with a Set