Question

1. An investor has been thinking about starting her own independent women's beautification business. The investor's problem is to decide how large her business should be. The annual returns will depend on both the size of her business and a number of marketing factors related to the beauty industry and demand for beautification. The following payoff table gives the profits that would be realized during the next year for each of four investment alternatives (in 000'OMR) Size of Station Good market Fair market Poor market Small 50 20 10- Medium 80 30 - 20 Large 100 30 40- Very large 150 25 -120 a What is the maximax decision? b. What is the maximin decision? c. Develop an opportunity loss table. 1 1. What is the minimax regret decision? e. If the probabilities for Good, Fair and Poor markets are: 0.5, 0.4, and 0.1 respectively. 1 Which of the four options should the investor choose to maximize the expected monetary value (EV)? 2 An investor who invests in the stock market has become doubtfulabout the stock market as a good investment. In some cases, it would have been better for him to have his money in a bank than in the stock market. During the next year, he must decide whether to invest OMR10,000 in the stock market or in a fixeddeposit (FD) in a bank at an interest rate of 9%. If the market is good, he believes that he could get a 14% return on his money. With a fair market, he expects to get an 8% return. If the market is bad, he will most likely get no return at all-in other words, the return would be 0%. The investor estimates that the probability of a good market is 0.4, the probability of a fair market is 0.4, and the probability of a bad market is 0.2, and he wishes to maximize his long-run average return. a Develop a decision table for this problem."0000" b. What is the best decision? Calculate the expected value of perfect information and interpret the result. O D d. The investor is thinking about paying for a marketing company that could predict very accurately whether the market would be good, fair, or poor. What is the maximum amount of money that he should pay to the company?