Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his unive

Question

Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his university teaching job, Ken has been able to increase his annual salary by a factor of over 100. At the present time, Ken is forced to consider purchasing some more equipment for Brown Oil because of competition. His alternatives as the following:

1-     Ken purchases a Sub 100 and if there is a favorable market, he will realize a profit of $300,000. On the other hand, if the market is unfavorable, Ken will suffer a loss of $200,000.

2-     Ken purchases a Oiler J and if there is a favorable market, he will realize a profit of $250,000. On the other hand, if the market is unfavorable, Ken will suffer a loss of $100,000.

3-     Ken purchases a Texan and if there is a favorable market, he will realize a profit of $75,000. On the other hand, if the market is unfavorable, Ken will suffer a loss of $18,000.

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If Ken has always been a very optimistic decision maker

A-    What type of decision is Ken facing?   

B-     What decision criterion should he use?   

C-    What alternative is best?   

Explanation / Answer

A) Ken is facing a decision to decide between various alternatives

b) SInce he is optimistic, he should use maximax criteria so as to maximize his maximum profit.

c) Best alternative is Oiler J which gives 250000 in best conditions.

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