Answer Happy

T. Bone Puckett, a corporate raider, has acquired a textile company and is contemplating the future of one of its major plants, located in South Carolina. Three alternative decisions are being considered. The first alternative decision is to expand the plant and produce lightweight, durable materials for possible sales to the military, a market with little foreign competition. The second alternative decision is to maintain the status quo at the plant, continuing production of textile goods that are subject to heavy foreign competition and the third alternative decision is to sell the plant now. If one the first two alternatives is chosen, the plant will still be sold at the end of a year. The amount of profit that could be earned by selling the plant in a year depends upon foreign market conditions, including the status of a trade embargo bill in Congress. Table Q2 shows the payoff (profit in RM) for each decision situation. Table Q2: Payoff table of T. Bone Puckett textile company Assume that a probability of 0.70 that good foreign competitive conditions will exist and a probability of 0.30 that poor conditions will exist. T. Bone Puckett has hired a consulting firm to provide a report on future political and market situations. The report will be positive (S) or negative (N), indicating either a good (g) or poor ( r) future foreign competitive situation. The following are the conditional probability of each report outcome, given each state of nature. P(g∣S)=0.60P(g∣N)=0.30​P(r∣S)=0.40P(r∣N)=0.70​ (a) Determine the optimal decision strategy and its expected value of the decision strategy. (10 marks)