Gasoline Prices Theater Motel Restaurant Day Spa Gift Shop A

Gasoline Prices

Theater

Motel

Restaurant

Day Spa

Gift Shop

A local real estate investor in Orlando is considering five alternative investments: a day spa, a theater, a restaurant, a motel, or a gift shop. Profits from the day spa, theater, gift shop or restaurant will be affected by the cost of gasoline; profits from the restaurant will be relatively stable under any condition.
The following payoff table shows the profit or loss that could result from each investment. Determine the best investment using a pessimistic criterion.

Gasoline Prices

*Investment Decisions*	Increase .30	Stable .60	Decrease .10
Day Spa	$-3,000	$14,000	$19,000
Gift Shop	$-8,000	$15,000	$20,000
Motel	$7,000	$8,000	$10,000
Restaurant	$6,000	$6,000	$6,000
Theater	$-6,000	$22,000	$18,000


Answers:	Theater
	Motel
	Restaurant
	Day Spa
	Gift Shop

Ans:

Pessimistic approach is maximin approach i.e. we maximize the worst payoffs

Maximum of worst payoff is 7000,which is paid off by Motel.

Correct option is Motel.

Investment Decisions	Increase	Stable	Decrease	Worst payoff
0.3	0.6	0.1
Day Spa	(-3000)	14000	19000	-3000
Gift Shop	(-8000)	15000	20000	-8000
Motel	7000	8000	10000	7000
Restaurant	6000	6000	6000	6000
Theater	(-6000)	22000	18000	6000

Gasoline Prices Theater Motel Restaurant Day Spa Gift Shop A local real estate investor in Orlando is considering five alternative investments: a day spa, a the

Gasoline Prices Theater Motel Restaurant Day Spa Gift Shop A

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