What are the states of nature

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Reference no: EM131360363

Problem -

Jeffrey Helm owns a health and fitness center called Bulk-Up in Harrisburg. He is considering adding more floor space to meet increasing demand. He will either add no floor space (N), a moderate area of floor space (M), a large area of floor space (L), or an area of floor space that doubles the size of the facility (D). Demand will either stay fixed, increase slightly, or increase greatly. The following are the changes in Bulk-Up's annual profits under each combination of expansion level and demand change level:

Demand Change	Expansion Level
Demand Change	N	M	L	D
Fixed	$0	-$4,000	-$10,000	-$50,000
Slight increase	$2,000	$8,000	$6,000	$4,000
Major increase	$3,000	$9,000	$20,000	$40,000

Jeffrey is risk averse and wishes to use the maximin criterion.

a) What are his decision alternatives and what are the states of nature?

b) What should he do?

Reference no: EM131360363

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