Please answer questions with the answers and put the answers in the picture wher
ID: 3283518 • Letter: P
Question
Please answer questions with the answers and put the answers in the picture where they belongAnswers only Please don’t make it confusing Please be clear Please write or type neatly of dollers is the payoff table for the Pittsburgh Development Corporation (POC) Condominium Project. Amounts are in millions State of Nature Strong Demand S1 Weak Demand S2 Decision Alternative Small complex, d Medium complex, d Large complex, ds 14 20 .9 Suppose PDC is optimistic about the potential for the luxury high-rise condominium complex and that this optimism leads to an initial subjective probability assessment of o.8 that demand will be strong (S) and a corresponding probability of 0.2 that demand will be weak (S2). Assume the decision alternative to build the large that the large complex remained optimal as long as the payoff for the strong demand was greater than or equal to $17.5 million and as long as demand was greater than or equal to -$19 million a. Consider the medium complex decision. How much could the payoff under strong demand increase and stll keep decision alternative dy the optimal solution? Itf required, analysis was conducted for the payoffs associated with this decision alternative. It was found round your answer to two decimal places million, the lerge complex remains the best decision The peyoft for the medum complex under strong demane remains Jless than or equal to smillon, the lrge complex remains the best decision. for the medium complex under strong demand remains less than or equal to .Consider the small complex decision. How much could the payoff under strong demand increase and still keep decision alternative dy the optimal spolution? It required, round your answer to two decimal places million, the large complex remains the best decision The payoff for the small compiex under strong demand remains less than or equal to
Explanation / Answer
a. Consider the medium complex decision. How much could the payoff under strong demand increase and still keep decision alternative d3, the optimal solution?EV (d3) = p1S1 + p2S2= 0.8(20) + 0.2(-9) = 14.2 EV(d2) ? 14.2 = 0.8S + 0.2(5) ? 14.2 = S? 16.5 As long as the payoff for the medium complex remains less than or equal to $16.5 millionunder strong demand conditions, the large complex remains the best decision.
b. Consider the small complex decision. How much could the payoff under strong demand increase and still keep decision alternative d3, the optimal solution?
EV (d1) ? 14.2 = 0.8S+ 0.2(7) ? 14.2 = S? 16. As long as the payoff for the medium complex remains less than or equal to $16 million under strong demand conditions, the large complex remains the best decision
So answers are:
A. 16.5
B. 16