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Probability Theory - Tea Time

Tea Time is considering selling juices along with its other products.

States of Nature

High Sales Med. Sales Low Sales
A(0.2) B(0.5) C(0.3)
3000 2000 -6000
0 0 0

A1 (sell juices)
A2 (don't sell juices)

The probabilities shown above represent the states of nature and the decision maker's (e.g., manager) degree of uncertainties and personal judgment on the occurrence of each state. What is the expected payoff for actions A1 and A2 above? What would be your recommendation? Interpret the results based on practical considerations.

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The expected payoff for action A1 is


Solution Summary

Brief calculations show the expected payoff actions for selling and not selling juice.