Fatima is considering the possibility of opening a small dress shop the Diplomatic area, a few blocks from the university. She has located a good place to attract students. Her options are to open a small shop, a medium-sized shop, or no shop at all. The market for a dress shop can be good average, or bad. The probabilities for these three possibilities are 0.2 for a good market, 0.5 for an average market, and 0.3 for a bad market. The net profit or loss for the medium-sized and small shops for the various market conditions are given in the following table. Alternatives Small shop State of Nature Good market (S) 75 000 Average market (S) 25 000 Bad market (S) - 40 000 100 0000 35 000 60 000 Medium-sized shop No shop EI 0 0 0 From the table above solve the following questions: a) What is the maxi-max decision (Optimistic)? b) What is the maxi-min decision (pessimistic)? c) Determine the EMV criterion if the decision-making environment is under risk.
