Purchase Solution

Computing a Payoff Table and Finding an Optimal Decision Using Given Data

Not what you're looking for?

Ask Custom Question

Jim has been employed at Gold Key Realty at a salary of $2,000 per month during the past year. Because Jim is considered to be a top salesman, the manager of Gold Key is offering him one of three salary plans for the next year: (1) a 25% raise to $2,500 per month; (2) a base salary of $1,000 plus $600 per house sold; or, (3) a straight commission of $1,000 per house sold. Over the past year, Jim has sold up to 6 homes in a month.

a) Compute the monthly salary payoff table for Jim. Hint: The decision alternatives are whether to choose plan 1, 2 or 3.
Hint: The states of nature are the number of homes sold (0,1,2,3,4,5 or 6)

b) For this payoff table find Jim's optimal decision using: (1) the conservative approach, (2) minimax regret approach and (3) optimistic approach

c) Suppose that during the past year the following is Jim's distribution of home sales. If one assumes that this is a typical distribution for Jim's monthly sales, which salary plan should Jim select?
Hint: Find the best decision using the EV approach.
Use the relative frequency method for determining the probabilities.
For Example: P(0)=1/12 and P(5)=3/12

Home Sales Number of Months
0 ................................1
1 ...............................2
2 .................................1
3 ...............................2
4 ...............................1
5 .............................3
6 .............................2

Purchase this Solution

Solution Summary

The solution gives deailed steps on computing payoff table, finding optimal decision using: (1) the conservative approach, (2) minimax regret approach, (3) optimistic approach and (4) EV approach.

Purchase this Solution


Free BrainMass Quizzes
Solving quadratic inequalities

This quiz test you on how well you are familiar with solving quadratic inequalities.

Know Your Linear Equations

Each question is a choice-summary multiple choice question that will present you with a linear equation and then make 4 statements about that equation. You must determine which of the 4 statements are true (if any) in regards to the equation.

Multiplying Complex Numbers

This is a short quiz to check your understanding of multiplication of complex numbers in rectangular form.

Geometry - Real Life Application Problems

Understanding of how geometry applies to in real-world contexts

Exponential Expressions

In this quiz, you will have a chance to practice basic terminology of exponential expressions and how to evaluate them.