Question

Decision making is a very complex process, how would one include different states of nature in our economic models or break even analysis?

Answer 1

Decision making is the process of making choices by identifying decisions, gathering information, and assessing alternative resolutions.

Decision making is often considered as very complex issue. As the final results will be depended on decision, Each alternate has its own pros and cons.

Possible states of nature includes everything that can happen, it must include all the possiblities that amy occur in future, it is most critical part of decision making

Break-even analysis is helpfull in the determination of the level of production or desired sales mix.  Break-even analysis also shows at the level of fixed costs relative to the profit earned by each additional unit produced and sold.

Break even analysis in decision making process:

Break-even analysis is valuable as a preliminary decision-making tool. The break-even point identifies the total amount of sales the business needs before profit can be earned. When analyzed closely, the break-even analysis also helps the business to identify excessive fixed costs.