Answered: For the Orlando real estate investment… | bartleby

Practical Management Science

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 31P

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Question

For the Orlando real estate investment problem, assume the probabilities for the gasoline shortage,
stable supply and surplus are .5, .3 and .2, then compute the expected payoff of choosing theater, it
is (type number only, no decimals, no dollar sign)

A local real estate investor in Orlando is considering three alternative investments: a motel, a
restaurant, or a theater. Profits from the motel or restaurant will be affected by the availability of
gasoline and the number of tourists; profits from the theater will be relatively stable under any
conditions. The following payoff table shows the profit or loss that could result from each
investment. Based on the Maximax criteria, the investor should choose
Investment
Motel
Restaurant
Theater
Motel
Restaurant
O Theater
O Any of the three
Shortage
$-8,000
2,000
6,000
Gasoline Availability
Stable Supply
$15,000
8,000
6,000
Surplus
$20,000
6,000
5,000

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