Small Business Essay

Below is a free essay on "Small Business" from Anti Essays, your source for free research papers, essays, and term paper examples.

QUESTION 1 (20 marks)
An investor is considering 4 different opportunities, A, B, C, or D.   The payoff for each opportunity will depend on the economic conditions, represented in the payoff table below.

Economic Condition
Poor Average Good Excellent
Investment   (S1)     (S2)   (S3) (S4)
A     50 75     20   30
B     80 15     40   50
C -100       300   -50   10
D     25 25     25   25  

  a) What decision would be made under maximax?

        Answer
       
        This is where the decision maker takes a gamble and looks at the best of the best, hence the decision
              is to invest in opportunity C = 300


STATES OF NATURE |
Decisions |       Maximum in a Row |
A |           75 |
B |           80 |
C |           300     the best of the best |
D |           25 |



  b) What decision would be made under maximin?

  Answer

  This is where the decision maker has a pessimistic outlook hence looks at the worst outcome and select  
  the best, so the best of the worst is to invest in opportunity D = 25


STATES OF NATURE |
Decisions |         Minimum in a Row |
A |             20 |
B |             15       |
C |           -100       |
D |             25       the best of the worst |





  c) What decision would be made under minimax regret?


Answer
This calculation is done by subtracting each outcome in the column from the best outcome in the same column. Hence

                                      * Calculation of Regrets
                                        *                                         * Investment |                                         * Demand (States of Nature) |                                         * |
                                        * |...

Read Full Essay

Citations

MLA Citation

"Small Business". Anti Essays. 22 Oct. 2014

<http://www.antiessays.com/free-essays/Small-Business-340293.html>

APA Citation

Small Business. Anti Essays. Retrieved October 22, 2014, from the World Wide Web: http://www.antiessays.com/free-essays/Small-Business-340293.html