At a decision point in a decision tree,which machine would you select when trying to maximize payoff when the anticipated benefit of selecting machine A is $45,000 with a probability of 90%;the expected benefit of selecting machine B is $80,000 with a probability of 50% and the expected benefit of selecting machine C is $60,000 with a probability of 75%?
A)Machine A
B)Machine B
C)Machine C
D)You would be indifferent between machines A and C

Question

Quizplus · Accepted Answer

The expected payoff for each machine is calculated by multiplying the benefit by the probability: Machine A: $45,000 * 0.90 = $40,500; Machine B: $80,000 * 0.50 = $40,000; Machine C: $60,000 * 0.75 = $45,000. Machine C has the highest expected payoff.

At a Decision Point in a Decision Tree,which Machine Would