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%? (Points : 5) Machine A Machine B Machine C You would be indifferent between machines A and C You would be indifferent between machines A and B

Answer 1

Answer:

Machine C

Explanation:

The expected monetary value (EMV) of machine A = $45,000 x 90% = $40,500

The expected monetary value (EMV) of machine B = $80,000 x 50% = $40,000

The expected monetary value (EMV) of machine C = $60,000 x 75% = $45,000

EMV of machine C is higher than the EMV of machines A and B