A city government is trying to decide whether it should have celebration for its one-hundredth anniversary. The financial success of the project will be strongly dependent on the weather. The alternatives available to the city government are (1) have large celebration (2) have small celebration (3) have no celebration. The payoff matrix of this decision is as under
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0.5 0.2 0.3
S1 S2 S3
Sun Cloudy Rain
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D1 Large celebration 350,000 80,000 150,000
1
Expert's answer
2015-02-20T09:22:55-0500
If the alternatives available to the city government are (1) have large celebration (2) have small celebration (3) have no celebration, the payoff matrix of this decision is as under S1 (sun) = 0.5, S2 (cloudy) = 0.2, S3 (rain) = 0.3, and possible earnings of large celebration are 350,000, 80,000 and 150,000, the risk-weighted amount of revenue will be: TR = 350,000*0.5 + 80,000*0.2 + 150,000*0.3 = 236,000.
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