The following payoff table provides profits based on various possible decision alternatives and various levels of demand. States of Nature Demand Alternatives Low Medium High Alternative 1 80 120 140 Alternative 2 90 90 90 Alternative 3 50 70 150 Alternative 4 70 80 120 The probability of a low demand is 0.4, while the probability of a medium and high demand is each 0.3. What decision would a pessimist make? Select one: A. Alternative 2 B. Alternative 1 C. Alternative 4 D. Alternative 3 E. High Demand
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4 * 120) + (0.3 * 140) + (0.3 * 150) = 48 + 42 + 45 = 135 - For Alternative 2: (0.4 * 120) + (0.3 * 90) + (0.3 * 120) = 48 + 27 + 36 = 111 - For Alternative 3: (0.4 * 60) + (0.3 * 60) + (0.3 * 120) = 24 + 18 + 36 = 78 - For Alternative 4: (0.4 * 120) + (0.3 * 60) + Show more…
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