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  3. mickey johnson is considering investing some money

Mickey Johnson is considering investing some money that he inherited. The following payoff table gives the               profits...

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Operations Management

Mickey Johnson is considering investing some money that heinherited. The following payoff table gives the             profits that would be realized during the next year for each ofthree investment alternatives Mickey is             considering (You should calculate the results to supportyour conclusions to get the credit): (10 points)

                                   State of Nature

Decision

Alternative

Good

Economy

Poor

Economy

Stock market

50,000

-20,000

Bonds

30,000

15,000

CDs

20,000

20,000

Probability

0.8

0.2

  1. What decision would maximize expected profits? (4 points)
  1. What is the maximum amount that should be paid for a perfectforecast of the economy? (3 points)
  1. Develop an opportunity loss table for the investment problemthat Mickey Lawson faces. What decision would minimize the expectedopportunity loss? What is the minimum EOL? (3 points)

Answer & Explanation Solved by verified expert
4.0 Ratings (595 Votes)
a Based on the given data we find the Expected Monetary Valuefor each alternative as shown belowAs seen from above the decision of Stock Market would maximizethe expected profitsTheabove table in the form of formulas is    See Answer
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