1. Decision Making Problem Solving - 10 points ABC Manufacturing is trying to analyze the cost associated with three decision options and four states of nature. The payoff matrix for this situation is shown below All $ are in thousands. State of Nature Alternatives 51 52 53 54 A1 20 25 30 35 A2 40 30 40 20 A3 10 60 30 25 What decision should be made according to the following decision rules? (show work) (a) Optimistic (b) Pessimistic (c) LaPlace (d) minimax regret 2. National Oil Company - 10 points The National Oil Company is considering bidding for an offshore oil drilling contract to be awarded by the government. Company management have determined the bid price to be $300 million, with a 60% chance of winning. If they win the contract (cost of the drilling rights), they must decide whether to set up a new drilling operation or to move an existing operation, which had been proved successful, to the new site. With either operation the probability of success and the financial return is as follows: New Drilling Operation Old Operation Moved Outcome Probability Revenue Probability Revenue ($ in millions) ($ in millions) Success 0.7 400 0.8 350 Failure 0.3 100 0.2 175 If they do not bid or they lose the contract, the company will use the $300 million to modernize its operations, with the increased profit to the company being either 5% or 6%, with respective probabilities of 0.4 and 0.6. (a) What strategy should National Oil pursue (bid or modernize)? (show work) (b) Create a Risk Profile for National Oil