Consider the following decision scenario State of Nature Hig

Consider the following decision scenario: State of Nature High Med. Low A $ 20 * 20 5 B 25 30 11 C 30 12 13 D 10 12 12 E 50 40 (28 ) *PV for profits ($000) With equally likely states of nature, the alternative that has the largest expected monetary value is: Multiple Choice C. D. A. E. B.

Solution

With equally likely states of nature, EMV in terms of PV($000) is calculated below:

Expected Monetary Value (EMV) of decision A = (20+20+5)/3 =15

EMV of decision B = (25+30+11)/3 = 22

EMV of decision C = (30+12+13)/3 = 18.33

EMV of decision D = (10+12+12)/3 = 11.33

EMV of decision E = (50+40-28)/3 = 20.67

The largest EMV is 22 pertaining to decision alternative B

ANSWER : B