1. Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his un
ID: 3044982 • Letter: 1
Question
1. 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 are shown in the following table:
Equipment Favorable Market ($) Unfavorable Market ($)
Sub 100 300,000 -200,000
Oiler J 250,000 -100,000
Texan 75,000 -18,000
For example, if Ken purchases a Sub 100 and if there is a favorable market, he will relize a profit of $300,000. On the other hand, if the market is unfavorable, Ken will suffer a loss of $200,000. But Ken has always been a very optimistic decision maker.
a) what type of decision is Ken facing? Choose one: Certainly, Risk, Uncertainty
b) what decision criterion should he use? Explain.
c) what alternative is best? Choose one: Sub 100, Oiler J, Texan.
Explanation / Answer
a)
The type of decision making is decision making under uncertainty because the decision maker does not know the probability.
b)
As given Mr. k is an optimistic decision maker, he might choose optimistic criteria.
c)
Using optimistic criteria, Sub 100 is best alternative
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