Question

A screen-printing business has to choose between printing t-shirts and

sweatshirts to manage risk due to dwindling student enrollments. The matrix below

shows the returns of each shirt and probabilities of three possible enrollment outcomes; high,

average, and low.

Student Enrollment Outcome	Probability	Corn	Soybeans
High	0.1	$25,000	$29,000
Average	0.6	12,000	15,000
Low	0.3	5,000	2,000
Expected Value		11,200	12,500
Minimum Value		$5,000	$2,000
Maximum Value		$25,000	$29,000
Range		$20,000	$27,000

Which shirt type should the business produce considering each of the following decision rule?

i. Most likely outcome                        ______________________________

ii. Maximum expected value ______________________________

iii. Risk and returns comparison             ______________________________

iv. Safety first (maxi-min)      ______________________________

v. Minimum of $4,000 returns            ______________________________

Answer 1

Solution:

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