Modern Electronics specializes in manufacturing modern electronic components. It also builds the equipment that produces the components. Modern Electronics is considering building a new facility but the estimated profits would be impacted by the type of market that develops. The probability for a strong market is 0.4; for a fair market is 0.4; and for a poor market is 0.2. You are responsible for advising the president of Modern Electronics on the type facility that should be built or to not build a facility at all. The table shows the estimated profits under each market and for each size facility.
|
|
Estimated Profits
|
|
|
Strong Market
|
Fair Market
|
Poor Market
|
|
Build a large facility
|
550,000
|
150,000
|
-500,000
|
|
Build a medium-size facility
|
500,000
|
125,000
|
-150,000
|
|
Build a small facility
|
250,000
|
75,000
|
-25,000
|
|
Do not build a facility
|
0
|
0
|
0
|
1. What is your recommendation to the president based on expected value that maximizes profits (EMV).
2. Provide a second recommendation to the president that minimizes regret.