Table A.2
Use the following to answer the questions below.
A company that is introducing a new product has to choose between four different manufacturing methods,referred to as methods A,B,C and D.Depending on the demand for the product,they forecast different levels of expenses for the year (values are in thousands).The company has identified three possible states of nature for economic growth,and named them High,Medium,and Low.

-Using the information in Table A.2,which alternative is BEST if further study revealed that the probability of high growth is 0.2,the probability of medium growth is 0.5,and the probability of low growth is 0.3?
A)A
B)B
C)C

Question

Table A.2
Use the following to answer the questions below.
A company that is introducing a new product has to choose between four different manufacturing methods,referred to as methods A,B,C and D.Depending on the demand for the product,they forecast different levels of expenses for the year (values are in thousands).The company has identified three possible states of nature for economic growth,and named them High,Medium,and Low.
 
-Using the information in Table A.2,which alternative is BEST if further study revealed that the probability of high growth is 0.2,the probability of medium growth is 0.5,and the probability of low growth is 0.3?
A)A 
B)B 
C)C

Quizplus · Accepted Answer

To find the expected value for each choice, we multiply the expenses for each state of nature by the probability of that state of nature and sum the results. 
For choice A: 
(0.2)($800) + (0.5)($900) + (0.3)($1000) = $910 
For choice B: 
(0.2)($700) + (0.5)($800) + (0.3)($900) = $810 
For choice C: 
(0.2)($1000) + (0.5)($1100) + (0.3)($1200) = $1100 
For choice D: 
(0.2)($900) + (0.5)($1000) + (0.3)($1100) = $1000

Therefore, choice B has the lowest expected expenses and is the best choice.

Table A.2 Use the Following to Answer the Questions Below