Problem 1 – Worth 2 pts Jerry is considering buying a new...

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Problem 1 – (Worth 2 pts) Jerry is considering buying a new pickup truck for his lawn service firm. The economy in town seems to be growing, and he is wondering whether he should opt for a subcompact, compact, or full-size pickup truck. The smaller truck would have better fuel economy, but would sacrifice capacity and some durability. A friend at the Bureau of Economic Research told him that there is a 30% chance of lower gas prices in his area this year, a 20% chance of higher gas prices, and a 50% chance that gas prices will stay roughly unchanged. Based on this information, Jerry has developed a decision table that indicates the profit amount he would end up with after a year for each combination of truck and gas prices. States of Nature Alternatives Lower gas prices Gas prices unchanged Higher gas prices Probability .3 .5 .2 Subcompact $16,000 $21,000 $23,000 Compact $15,000 $20,000 $22,000 Full size $18,000 $19,000 $6,000 Calculate the expected monetary value for each decision alternative. Which decision yields the highest EMV?

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