Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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QUESTION: Although Ken Brown is the principal owner of Brown Oil, his brother Bob is credited with making the company a financial success. Bob is vice president of finance. Bob attributes his success to his pessimistic attitude about business and the oil industry. Given the information, it is likely that Bob will arrive at a different decision. What decision criterion should Bob use, and what alternative will he select?
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Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his university teaching job, Ken has been able to increase his annual salary by a factor of over 100. At the present time, Ken is forced to consider purchasing some more equipment for Brown Oil because of competition. His alternatives are shown in the following table:
| Equipment | Favorable Market $ | Unfavorable Market $ |
|---|---|---|
| Sub 100 | 300,000 | -200,000 |
| Oiler J | 250,000 | -100,000 |
| Texan | 75,000 | -18,000 |
For example, if Ken purchases a Sub 100 and if there is a favorable market, he will realize a profit of $300,000. On the other hand, if the market is unfavorable, Ken will suffer a loss of $200,000. But Ken has always been a very optimistic decision maker.
a. What type of decision is Ken facing?
b. What decision criterion should he use?
c. What alternative is best?
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