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First step in decision analysis is Problem Formulation.

Verbal Statement

## 2 possible chance event outcomes are considered ± strong

demand and weak demand.

## The possible outcome for a chance event are referred to as

the states of nature.
PDC Ltd. purchased a land that will be the site of a new luxury condominium
complex. PDC plans to price the individual condominium units between
\$300,000 and \$1,400,000.

## PDC commissioned preliminary architectural drawings for three different -

sized projects: one with 30 condominiums, one with 60 condominiums, and
one with 90 condominiums. The financial success of the project depends upon
the size of the condominium complex and the chance event concerning the
demand for the condominiums.

The statement of the PDC decision problem is to select the size of the new
luxury condominium project that will lead to the largest profit given the
uncertainty concerning the demand for the condominiums.
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## D1 ± a small complex with 30 condominiums

D2 ± a medium complex with 60 condominiums
D3 ± a large complex with 90 condominiums

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## S1 ± strong demand for the condominiums

S2 ± weak demand for the condominiums
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The consequence resulting from a specific combination of a
decision alternative and a state of nature is referred to as Payoff.

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