Question

At a decision point in a decision tree, which machine would you select when trying to maximize payoff when the anticipated benefit of selecting machine A is $45,000 with a probability of 90%; the expected benefit of selecting machine B is $80,000 with a probability of 50% and the expected benefit of selecting machine C is $60,000 with a probability of 75%?
a) Machine A
b) Machine B
c) Machine C

Answer 1

Answer:

Machine C

Explanation:

The computation of the expected benefit is shown below:

For Machine A

= $45,000 × 90%

= $40,500

For Machine B

= $80,000 × 50%

= $40,000

For Machine C

= $60,000 × 75%

= $45,000

If we see the expected benefit of each machine so we can say that the Machine C has the highest benefit generated from the available ones