Dr. Mike Adams, a local brain surgeon, believes there is a lot of money to be made renting apartments to students here in Alamosa. He is considering constructing one, two, or possibly three apartment complexes, each of which contains 40 apartments. Dr. Adams isn't sure how many to build - that depends on student enrollment. After checking with the college, Dr. Adams obtained the following projected enrollments: 1500 if there is a decline in the economy; 2250 if there is no change in the economy; and 3000 if the economy increases. About 1/25 of enrolled students will rent from him, estimates Dr. Adams. This equates to 60 renters if 1500 are enrolled; 90 renters if 2250 are enrolled; and 120 if 3000 are enrolled.
The wise and highly respected Dr. Weston was asked to estimate how likely each event was (i.e. decline, no change, or increase in economy). According to Dr. Weston, a decline in the economy has 10% likelihood; no change has 20% likelihood; and an increase in the economy has a 70% probability.
Each complex will cost $100,000 per year to build and maintain, or $2,500 per apartment per year, whether rented or not. He will charge $250 per month rent for all apartments, which amounts to $3,000 per apartment per year. Thus his profit is $500 per year for each apartment rented. (Note that he will lose $2,500 a year on those he did not rent!)
Construct a Payoff Table.
The wise and highly respected Dr. Weston was asked to estimate how likely each event was (i.e. decline, no change, or increase in economy). According to Dr. Weston, a decline in the economy has 10% likelihood; no change has 20% likelihood; and an increase in the economy has a 70% probability.
Each complex will cost $100,000 per year to build and maintain, or $2,500 per apartment per year, whether rented or not. He will charge $250 per month rent for all apartments, which amounts to $3,000 per apartment per year. Thus his profit is $500 per year for each apartment rented. (Note that he will lose $2,500 a year on those he did not rent!)
Construct a Payoff Table.