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Decision Theory

# Decision Theory - 300,000-100000 300,000-0 300,000-300,000...

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Theresa A. Carpenter Small factory (10000*10) -200000 = -\$100000 (20000*10) -200000 = 0 (50000*10) -200000 = \$300000 (100000*10)-200000 = \$300000 Large factory (10000*10)-400000 = - \$300000 (20000*10)-400000= - \$200000 (50000*10)- 400000= \$100000 (100000*10) – 400000= \$600000 2. 900,000 Alternatives 10,000 20,000 50,000 100,000 Building large factory 600,000- (- 300,000) 600,000-(- 200,000) 600,000-100,000 600,000-600,000 Opportunity Loss 900,000 800,000 500,000 0 3. 0 Alternatives 10,000 20,000 50,000 100,000 Alternatives 10,000 20,000 50,000 100,000 Build large factory -300,000 -200,000 100,000 600,000 Build small factory -100,000 0 300000 300000

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Building small factory
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Unformatted text preview: 300,000-(-100000) 300,000-0 300,000-300,000 300,000-300,000 Opportunity Loss 400,000 300,000 4. Payoff= a x (maximum payoff) + (1-a) x (minimum payoff) 5. Optimal size factor 10,000 20,000 50,000 100,000 EMV Probability 0.1 0.4 0.2 0.3 Build Large factory-300,000-200,000 100,000 600,000 90,000 Build Small factory-100,000 300,000 300,000 140,000 0.1 (-300,000) + 0.4 (-200,000) + 0.2 (100,000) + 0.3 (600,000) = (-30,000) + (-80,000) + (20,000) + (180000) =90,000 0.1 (-100,000) + 0.4 (0) + 0.2 (300,000) + 0.3 (300,000) = (-10,000) + (0) + (60,000) + (90,000) = 140,000...
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Decision Theory - 300,000-100000 300,000-0 300,000-300,000...

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