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This the Question*******____________________________________________________________3- 17 Although Ken Brown (discussed in Problem 3- 16 shown below) is the principal owner of Brown Oil, his brother Bob is credited with making the company a financial success. Bob is vice president of finance. Bob attributes his success to his pessimistic attitude about business and the oil industry. Given the information from Problem 3-16, it is likely that Bob will arrive at a different decision. What decision criterion should Bob use, and what alternative will he select?______________________________________________________________Here is Question and answer for 3-163-16 Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his university teaching job, Ken has been able to increase his annual salary by a factor of over 100. At the present time, Ken is forced to consider purchasing some more equipment for Brown Oil because of competition. His alternatives are shown in the following table:UNFAVORABLE MARKET – 200,000 – 100,000 – 18,000 For example, if Ken purchases a Sub 100 and if there is a favorable market, he will realize a profit of $300,000. On the other hand, if the market is unfavorable, Ken will suffer a loss of $200,000. But Ken has always been a very optimistic decision maker. (a) What type of decision is Ken facing? (b) What decision criterion should he use? (c) What alternative is best?Solution:(a) A pessimistic decision creator like Ken Brown will use the Maximum decision rule to make a conservative decision. Under this, he would be considering the worst consequences of each possible course of action and will select the one that has the least bad consequence. The worst consequence here is when the market is unfavorable. Equipment Unfavorable Market (200,000) (100,000) (18,000) the maximum payoff for the Brown oil when we are considering the worst outcome will come under the option “Texan” where they will make a loss of $18,000. Thus, Ken Brown will select the “Texan equipment”____________________________________________________________________________________
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