3-17 Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his university teaching job, Ken has been ab
Posted: Sun Jul 03, 2022 4:26 pm
3-17 Kenneth Brown is the principal owner of Brown Oil, Inc.After quitting his university teaching job, Ken has been able toincrease his annual salary by a factor of over 100. At the presenttime, Ken is forced to consider purchasing some more equipment forBrown Oil because of competition. His alternatives are shown in thefollowing table:
EQUIPMENT FAVORABLE MARKET ($) UNFAVORABLE MARKET ($)
Sub 100 300,000 –200,000
Oiler J 250,000 –100,000
Texan 75,000 –18,000
For example, if Ken purchases a Sub 100 and if there is afavorable market, he will realize a profit of $300,000. On theother hand, if the market is unfavorable, Ken will suffer a loss of$200,000. But Ken has always been a very optimisticdecision-maker.
(a) What type of decision is Ken facing?
(b) What decision criterion should he use?
(c) What alternative is best?
EQUIPMENT FAVORABLE MARKET ($) UNFAVORABLE MARKET ($)
Sub 100 300,000 –200,000
Oiler J 250,000 –100,000
Texan 75,000 –18,000
For example, if Ken purchases a Sub 100 and if there is afavorable market, he will realize a profit of $300,000. On theother hand, if the market is unfavorable, Ken will suffer a loss of$200,000. But Ken has always been a very optimisticdecision-maker.
(a) What type of decision is Ken facing?
(b) What decision criterion should he use?
(c) What alternative is best?