CMA Intermediate · Management Accounting · Decision Theory
A Kolkata firm uses the Hurwicz criterion with a coefficient of optimism of 0.6. Payoffs (Rs. thousand) are: Option P: best 90, worst 10; Option Q: best 70, worst 30; Option R: best 60, worst 40. Which option is chosen?
Option P is chosen with a Hurwicz value of Rs. 58 thousand. The value is 0.6 times the best payoff plus 0.4 times the worst payoff, giving P 58, Q 54 and R 52. P has the highest weighted value.
- AOption P with weighted value 58Correct
- BOption Q with weighted value 54
- COption R with weighted value 52
- DOption P with weighted value 54
Explanation
Hurwicz value = 0.6 x best + 0.4 x worst. P = 54+4 = 58; Q = 42+12 = 54; R = 36+16 = 52. The highest is P at 58.
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