Even though independent gasoline stations have been having a difficult time, Ian Langella has been thinking about starting his own independent gasoline station. Ian’s problem is to decide how large his station should be. The annual returns will depend on both the size of his station and a number of marketing factors related to the oil industry and demand for gasoline. After a careful analysis, Ian developed the following table:
|SIZE OF FIRST STATION||GOOD MARKET ($)||FAIR MARKET ($)||POOR MARKET ($)|
For example, if Ian constructs a small station and the market is good, he will realize a profit of $50,000.
Andrew Thomas, a sandwich vendor at Hard Rock Cafe’s annual Rockfest, created a table of conditional values for the various alternatives (stocking decision) and states of nature (size of crowd):
|STATES OF NATURE (DEMAND)|
|Small stock||$ 9,000||$ 8,000||$4,000|
The probabilities associated with the states of nature are 0.3 for a big demand, 0.5 for an average demand, and 0.2 for a small demand.
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