Answer to Question #104275 in Microeconomics for Narvind kuar

Question

A city government is trying to decide whether it should have a 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 a small celebration
(3) have no celebration.
The payoff matrix of this decision is as under:
PAYOFF MATRIX FOR CITY CELEBRATION PROBLEM
0.5 0.2 0.3
S1 S2 S3
Sun Cloudy Rain
D1 Large celebration 350,000 80,000 -150,000
D2 small celebration 150,000 100,000 -50,000
D3 No celebration 0 0 0

Answer 1

Taking into considerations that the alternatives available to city government are

 (1) Have large celebration

(2) Have small celebration

(3) Have no celebration, the

And the payoff matrix of this decision is as under

S1 (sun) = 0.5,

S2 (cloudy) =0.2,

S3 (rain) = 0.3

While the possible earnings of large celebration are

350,000

 80,000

150,000,

 Then the risk-weighted amount of revenue will be:

TR = (350,000*0.5) + (80,000*0.2) + (150,000*0.3)

=17500+16000+4500

 = 236,000