L. J. Gant is a builder who has recently acquired a tract of unimproved real estate on
Question:
House SizeProbability
1,600 .....................20
2,000 .....................50
2,400 .....................20
2,800 .....................10
Before beginning construction, Gant read in the paper that an electronics firm announced it was considering locating a research laboratory in the community not far from Gant's planned housing site. If the firm locates a research facility in town, it will significantly increase demand for the 2,400- and 2,800-square-foot houses. Gant believes there is a 75% probability that the electronics firm will locate its research facility in town and a 25% probability that it will not. The expected payoff for each alternative is as follows:
Required:
(1) Compute the posterior probabilities for each of the alternatives related to the proposed housing project.
(2) Compute the expected value of each alternative course of action, and make a recommendation to Gant about which course of action to take.
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