Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c }
\text { States } & A 1 & A 2 & A B \
\hline 1 & 12 & - 2 & 8 \
2 & 4 & 10 & 5
\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3
-Referring to Instruction 17-3,if the probability of S1 is 0.5,what is the optimal alternative using expected monetary value (EMV)?
A) A1
B) A2
C) A3
D) It cannot be determined.

Question

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
 $$\begin{array} { c c c c } 
\text { States } & A 1 & A 2 & A B \
\hline 1 & 12 & - 2 & 8 \
2 & 4 & 10 & 5
\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3
-Referring to Instruction 17-3,if the probability of S1 is 0.5,what is the optimal alternative using expected monetary value (EMV)?
A) A1
B) A2
C) A3
D) It cannot be determined.

Quizplus · Accepted Answer

The expected monetary value (EMV) for each alternative is calculated by multiplying the profit of each state by the probability of that state occurring and then summing these products. For A1, EMV = (0.5 * 12) + (0.5 * 4) = 6 + 2 = 8. For A2, EMV = (0.5 * -2) + (0.5 * 10) = -1 + 5 = 4. For A3, EMV = (0.5 * 8) + (0.5 * 5) = 4 + 2.5 = 6.5. Therefore, A1 has the highest EMV and is the optimal alternative.

Instruction 17-3 the Following Payoff Table Shows Profits Associated with a Set

Instruction 17-3
the Following Payoff Table Shows Profits Associated with a Set