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3-19Mickey Lawson is considering investing some money that he inherited. The following payoff table gives the profits that would be realied during the ne!t year for each of thethree investment alternatives Mickey is considering"

a. #hat decision would ma!imie e!pected profile$ b. #hat is the ma!imum amount that should be paid for a perfect forecast of theeconomy$

State of Nature

Decision Alternative

GoodEconomy

BadEconomy

Stock market 80,000 (20,000)

Bonds 0,000 20,000

!D"s 2,000 2,000

#ro$a$ility 0%& 0%&

3-%3Today&s electronics specialies in manufacturing modern electronic components. 't also builds the e(uipment that produces the components. )hyllis #einberger* who isresponsible for advising the president of Today&s +lectronics on electronic manufacturinge(uipment* has developed the following table concerning a proposed facility"

a. develop an opportunity loss table b. what is the mimima! regret decision$

#rofit (')

  Stron arket *air arket #oor arket

+are facility &&0,000 0,000 (0,000)

edium si-ed facility 0,000 2.,000 (0,000)

Samll facility 20,000 0,000 (2,000)

No facility 0 0 0

3-3%,ill oliday is not sure what he should do. e can either build a (uadple!* build aduple!* gather additional information* or simply do nothing. 'f he gathers additionalinformation* the results could be either favorable or unfavorable* but it would cost him3*/// to gather the information. ,ill believes that there is a 0/-0/ chance that theinformation will be favorable. 'f the rental market is favorable* ,ill will 10*/// with the(uadple! or 0*/// with the duple!. ,ill doesn&t have the financial resources to do both.#ith an unfavorable rental market* however* ,ill could lose %/*/// with the (uadple! or 1/*/// with the duple!. #ithout gathering additional information* ,ill estimates that the probability of a favorable rental market is .. 2 favorable report from the study wouldincrease the probability of a favorable rental market to .9. urthermore* an unfavorablereport from the additional information would decrease the probability of a favorable

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rental market to .4. 5f course* ,ill could forget all of these numbers and do nothing.#hat is your advice to ,ill$

3-4%'n the past few years* the traffic problems in Lynn Mc6ell&s hometown have gotten

worse. 7ow* ,road 8treet is congested about half the time. The normal travel time towork for Lynn is only 10 minutes when ,road 8treet is used and there is no congestion.#ith congestion* however* it takes Lynn 4/ minutes to get to work. 'f Lynn decides totake the e!pressway* it will take 3/ minutes regardless of the traffic conditions. Lynn&sutility for travel time is"

:10 minutes; < .9:3/ minutes; < .:4/ minutes; < .%

a. #hich route will minimie Lynn&s e!pected travel time$

 b. #hich route will ma!imie Lynn&s utility$c. #hen it comes to travel time* is Lynn a risk seeker or risk avoider$