Question: Question (2): Based on what you have studied decision analysis theory, solve the following problem: (10 marks) State of Nature Alternatives Favorable Unfavorable Construct Large

Question (2): Based on what you have studied decision analysis theory, solve the following problem: (10 marks)

State of Nature

Alternatives

Favorable

Unfavorable

Construct Large firm

400 000
  • 380 000

Construct Small firm

200 000
  • 40 000

Do nothing

0

0

Probabilities

0.5

0.5

From the table above solve the following questions:

  1. What is the criterion of realism? Use value of 0.8(4 Marks)
  2. Develop an opportunity loss table and determine the mini-max regret decision.

(4 Marks)

  1. Find the Expected Monetary value under risk with probability(0.5). (2 marks)

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