Mr. X often flies from Town A to Town B. He can use the airport bus which cost rs. 25 but if he takes it, there is 0.08 chance that he will miss the flight. The stay in a hotel costs rs. 270 with 0.96 chance of being on time for the flight. For rs. 350 he can use a taxi which will make 99% chance of being on time for the flight. If x catches the plane on time, he will conclude a business transaction which will produce a profit of rs. 10000, otherwise he will lose it. Which mode of transport should Mr. X use? Answer using the EMV criterion.
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Here assume the above data as follows:-
- Costs as Impact.
- Every scenario as Risk.
- And positive sign for every opportunity, negative sign for every threats situation.
From the above given data there are three risk factors :-
RISK 1
Airport Bus
Impact = ₹25
Probability = -0.08%
EMV = probability * impact.
EMV of risk 1 is -0.02
RISK 2
Stay in hotel
Impact = ₹270
Probability = 0.96%
EMV = probability * impact.
EMV of risk 2 is 2.592
RISK 3
Taxi
Impact = ₹350
Probability = 99%
EMV = probability * impact.
EMV of risk 3 is 346.5
EMV of the total project is 349.
And X taking taxi will be the best mode as he can reach in time and the catche the plane on time and he will be able to conclude a business transaction which will produce a profit of rs. 10000.
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