Reference no: EM132969541

A real estate investor has the opportunity to purchase land currently zoned residential. If the county board approves a request to rezone the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. However, if the zoning change is not approved, the investor will have to sell the property at a loss.

Profits (in thousands of dollars) are shown in the following payoff table:

                                    State of Nature
                                   Rezoning Approved                Rezoning Not Approved

Decision Alternative             S1                                    S2
Purchase,                      d1 550                                -250
Do not purchase,              d2 0                                      0

Problem 1: If the probability that the rezoning will be approved is 0.5, what decision is recommended?

Problem 2: What is the expected profit?