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# Decision making under uncertainty

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Equipment Favorable market Unfavorable market
Sub 100 \$300,000 -200,000
Oiler J \$250,000 -100,000
Texan \$75,000 -18000

Ken has the above equipment options to buy to stay competitive. Ken is optimistic by nature.
A. What type of decision is Ken facing? I said Decsion making under Uncertainty
B. What criterion should he use? I said Maximax.
C. What alternative is best? I said Sub 100.

Bob,Kens brother, is pessimistic by nature and has the same equipment options above.

A. What decsion criterion should he use? I said Maximin.
B. What alternative will he select? I said texan.

Am i correct?

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#### Solution Summary

This posting contains solution to following problem on Decision Analysis.

\$2.19

## Global Expansion: Decision Making with Uncertainty

You're the manager of global opportunities for a U.S. manufacturer, who is considering expanding sales into Europe. Your market research has identified three potential market opportunities: England, France and Germany.

If you enter the English market, you have a .5 chance of big success (selling 100,000 units at a per-unit profit of \$8), a .3 chance of moderate success (selling 60,000 units at a per-unit profit of \$6), and a .2 chance of failure (selling nothing).

If you enter the French market, you have a .4 chance of big success (selling 120,000 units at a per-unit profit of \$9), a .4 chance of moderate success (selling 50,000 units at a per-unit profit of \$6), and a .2 chance of failure (selling nothing).

If you enter the German market, you have a .2 chance of huge success (selling 150,000 units at a per-unit of \$10), a .5 chance of moderate success (selling 70,000 units at a per-unit profit of \$6), and a .3 chance of failure (selling nothing).

a)If you can enter only market, and the cost of entering the market (regardless of which market you select) is \$250,000, should you enter one of the European markets?

b)If so, which one?

c)If you enter, what is your expected profit?

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