A car dealer is offering the following three two-year leasing options: Assume that a customer expects to
Question:
A car dealer is offering the following three two-year leasing options:
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Assume that a customer expects to drive between 15,000 to 35,000 miles during the next two years according to the following probability distribution:
P(driving 15,000 miles) = 0.1
P(driving 20,000 miles) = 0.2
P(driving 25,000 miles) = 0.2
P(driving 30,000 miles) = 0.3
P(driving 35,000 miles) = 0.2
a. Construct a payoff matrix for this problem.
b. What decision should be made according to the maximax decision rule? (Keep in mind that the “payoffs†here are costs, where less is better.)
c. What decision should be made according to the maximin decision rule?
d. What decision should be made according to the minimax regret decision rule?
e. What decision should be made according to the EMV decision rule?
f. What decision should be made according to the EOL decisionrule?
A dealer in the securities market is an individual or firm who stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price). A dealer seeks to profit from the spread between the...
Step by Step Answer:
b Plan III c Plan II d Plan I e Plan III f Plan III a Payoff Payoff Matrix Miles D...View the full answer
Spreadsheet Modeling & Decision Analysis A Practical Introduction to Management Science
ISBN: 978-0324656633
5th edition
Authors: Cliff T. Ragsdale
