At a decision point in a decision tree, which machine would you select when trying to maximize payoff when the anticipated benefit of selecting machine A is $45,000, with a probability of 90%; the expected benefit of selecting machine B is $80,000, with a probability of 50%; and the expected benefit of selecting machine C is $60,000, with a probability of 75%?
A) Machine A
B) Machine B
C) Machine C
D) You would be indifferent between machines A and C.
E) You would be indifferent between machines A and B.

Question

Quizplus · Accepted Answer

The expected payoff for each machine is calculated by multiplying the benefit by its probability: Machine A: $45,000 * 0.90 = $40,500; Machine B: $80,000 * 0.50 = $40,000; Machine C: $60,000 * 0.75 = $45,000. Machine C has the highest expected payoff.

At a Decision Point in a Decision Tree, Which Machine