The Dollar Department Store Chain Has the Opportunity of Acquiring

Essay

The Dollar Department Store chain has the opportunity of acquiring either 3,5,or 10 leases from the bankrupt Granite Variety Store chain.Dollar estimates the profit potential of the leases depends on the state of the economy over the next five years.There are four possible states of the economy as modeled by Dollar Department Stores and its president estimates P(s₁)= .4,P(s₂)= .3,P(s₃)= .1,and P(s₄)= .2.The utility has also been estimated.Given the payoffs (in $1,000,000's)and utility values below,which decision should Dollar make?
Payoff Table State Of The Economy
Over The Next 5 Years
Decision s₁ s₂ s₃ s₄
d₁ -- buy 10 leases 10 5 0 -20
d₂ -- buy 5 leases 5 0 -1 -10
d₃ -- buy 3 leases 2 1 0 - 1
d₄ -- do not buy 0 0 0 0
Utility Table
Payoff (in $1,000,000's)+10 +5 +2 0 -1 -10 -20
Utility +10 +5 +2 0 -1 -20 -50