Question: Suppose a hotel chain would like to build a facility

Suppose a hotel chain would like to build a facility near a new regional airport that is going to be constructed Unfortunately, however, the local politicos haven't yet decided between two possible sites, which we will designate as A and B. The hotel chain wants to purchase land now, even though the final decision hasn't been made, since the real-estate market is depressed, and rumors concerning a possible forthcoming decision are beginning to cause prices in both areas to rise. The chain must decide between four possible courses of action: buy a tract near location A; buy a tract near location B; buy tracts near both locations, do neither.
If the chain does build a facility near what turns out to be the eventual airport site, it stands to earn a tidy sum. If however, it buys a tract that turns out to be nowhere near the airport, it will eventually have to sell the tract for a loss. The relevant financial data appear in the following table:

Let's start off by deriving a payoff matrix, that is, a table indicating the chain's earnings or losses under each of the four possible strategies in both possible airport location scenarios:

Fill in the eight values in thistable?

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  • CreatedJuly 29, 2013
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