Problem:
John is considering buying a new pick up truck for his house-cleaning service for middle class customers. The middle class clients seem to be growing even though the economy seems to be not that hot. He is wondering whether he should opt for a sub-compact, or compact or full size pick up. The smaller truck would have better fuel economy, but would sacrifice capacity and durability. A client who works for Big Four Economic Research told him that there is a 30% chance of lower gas prices in this area this year, 20% chance of higher gas prices, and a 50% chance that the gas prices will remain unchanged.
Based on this information and using his girlfriend’s financial knowledge, they have developed a decision table that indicates the profit amounts at the end of the year for each combination of truck and gas prices. Help decide which type to purchase.
States of Nature
|
Alternatives
|
Lower Gas Prices
|
Gas Prices Unchanged
|
Higher Gas Prices
|
|
Probability
|
0.3
|
0.5
|
0.2
|
|
Subcompact
|
16,000
|
21,000
|
23,000
|
|
Compact
|
15,000
|
20,000
|
22,000
|
|
Full Size
|
18,000
|
19,000
|
6,000
|