Question

A local real estate investor in Orlando is considering three alternative investments; a motel, a restaurant, or a theater. Profits from the motel or restaurant will be affected by the availability of gasoline and the number of tourists; profits from the theater will be relatively stable under any conditions. The following payoff table shows the profit or loss that could result from each investment: Investment Weather Conditions Shortage Stable Supply Surplus Motel $-7,500 $12,000 $23,000 Restaurant 3000 7,000 6,500 Theater 5000 6,000 4,000 Determine the best investment, using the following decision criteria

a. Maximax b. Maximin c. Minimax regret d. Hurwicz (α = 0.4) e. Equal likelihood

Answer 1

Solutions- al max of motel = 23,000, mora ob nestaurant - 7000, maa of theature = 6000 Maa(a3,000, 7,000, Good = 23,000 Best mvestment using marimat is Motel. b) min of Motel = 7500, min of ovestau orient = 3000, min of theatwe = 4000 mara (,500, 3000, 4000) = 4000 Best investment using muximin is theature. Mora of thotel = 23,000, max of westanyomt= 4000, mor of theabore = 6000 min (a3,000, 7000, 6oool = 6000 Best investment using minimack is theature: 1 e Huawicz - almin value) + (1-alman value. Hurtwicł fox motel = (0*4*675001) + (0.6* 23000) = 16800 Huurwicz fou Restaurent = (0-4*3000) + (0=6* 70001 - 5400 HWWICK for theatere = (0.4*4000) +0:6 * 6000) = 5200 Best investment using Huurwicz is theature. equally tiketi hood :- mean cost of motel = 87,500 meam cost of Restaurant = 5500 mean cost of theature = 5000 Best investment using equal likelihood is theatve.