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which many oil giants subscribe, including KenBrown (see Problem 3-17 for details). In the lastissue, the letter described how the demand for oilproducts would be extremely high. Apparently, theAmerican consumer will continue to use oil productseven if the price of these products doubles.Indeed, one of the articles in the Lubricantstates that the chances of a favorable market for oilproducts was 70%, while the chance of an unfavorablemarket was only 30%. Ken would like to`use these probabilities in determining the bestdecision.EquipmentEMVSub 100300000-200000Oiler J250000-100000Texan75000-18000Probabilities70%30%100 with a favorable market is too high. Howmuch lower would this figure have to be for Kento change his decision made in part (b)? For Ken to change his.70X = 205000205000/.70=292857or7143(a)What decision model should be used? Ken Brown should use the Maximize Expected Monetary Value (EMV) model.(b)What is the optimal decision? After employing the probabilities in determining the best decision, Brown optimal decision isSub 100.Favorable Market ($)Unfavorable Market ($)(300000*.70)+ (-200000*.30)= 150000(300000*.70)+ (-200000*.30)= 145000(300000*.70)+ (-200000*.30)= 47100(c)Ken believes that the $300,000 figure for the SubSolve for X:.70X-200000(.30)= 145000.70X-60000= 145000decision this figure have to be292857 (or 7143 lower).
Problem 3-22Allen Young has always been proud of his personalinvestment strategies and has done very well overthe past several years. He invests primarily in thestock market. Over the past several months, however,