he Lubricant is an expensive oil newsletter to which many oil giants subscribe, including Ken Brown (see Problem 3-17 for details). In the last issue, the letter described how the demand for oil products would be extremely high. Apparently, the American consumer will continue to use oil products even if the price of these products doubles. Indeed, one of the articles in the Lubricant states that the chance of a favorable market for oil products was 70%, while the chance of an unfavorable market was only 30%. Ken would like to use these probabilities in determining the best decision. What decision model should be used

Expected Monetary Value decision model

Explanation:

The Expected Monetary Value (EMV) model is a statistical method used to calculate future payoffs that accounts for the risk and probability of different events happening.

It essentially takes the average of the scenarios that could happen based on their probabilities and their expected payoff and then adds them together to give a value that the investor can base their expectations upon.

For instance, in the above question, assuming that Ken Brown in a favorable market, Ken Brown can sell $500,000 worth of oil products but in an unfavorable one, they can only sell $100,000.

Based on the probabilities of the market conditions, EMV would show a value of;

= (500,000 * 70%) + (100,000 * 30%)

= $380,000

1. c

2. b

3. a

4. c

5. a

6. b

7. c

8. c

9.b

10. d

just took it 100%