A local real estate investor in Orlando is considering three alternative investm
ID: 3155029 • Letter: A
Question
A local real estate investor in Orlando is considering three alternative investments; a motel, a restraunt, and a theater. Profits from the motel or restrauant will be affected by the availability of gasoline and the number of tourist; profits from the theater will be relatively stable under ay conditions. The following payoff table shows the profit or loss that could result from each investment.
weater conditions
investment shortage stable supply surplus
motel $-7500 $12,000 23,000
restraunt 3,000 7,000 6,500
theater 5,000 6,000 4,000
determine the best investment, using the following criteria
a. Maximax
b. Maximin
c. Minimax regret
d. Hurwicz (a=0.4)
e. equal likelihood
Explanation / Answer
a. Max of motel = 23,000, max of restaurant = 7000, max of theatre = 6000
max(23,000 , 7000, 6000) = 23000
best investment usig maximax is motel.
b. min of motel = 7500, min of restaurant = 3000, min of theatre = 4000
max( 7500 , 3000, 4000) =4000
best investment using maximin is theatre.
c. Max of motel = 23,000, max of restaurant = 7000, max of theatre = 6000
min ( 23000 , 7000 , 6000) = 6000
best investment using minimax is theatre.
d. Hurwicz= a(min value)+ (1-a) max value
Hurwicz for motel = (0.4*-7500)+(0.6*23000) = 16800
Hurwicz for restaurant = (0.4*3000)+(0.6*7000) = 5400
Hurwicz for theatre = (0.4*4000)+(0.6*6000) = 5200
best investment using hurwicz is theatre.
e. equal likelihood:
Mean cost of motel = 27,500
Mean cost of restaurant = 5500
Mean cost of theatre = 5000
best investment using equal likelihod is theatre.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.