Laplace criterion of rationality, Managerial Accounting

Laplace Criterion of Rationality

This criterion holds that if decision makers do not know the probabilities of the various states of nature and have no reason to think otherwise, then the states of nature should be considered to be equally likely. On the basis of this supposition, the predictable monetary value for each alternative is calculated and the alternative with the highest expected monetary value is chosen.

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Workings:

EMV Sh.4 = 1/3 (12000) + 1/3 (8000) + 1/3 (0) = 6667
Others are computed in the same way.

Decision:

Set a price of Sh.4.00 since it maximizes the expected monetary value.

 

Posted Date: 12/4/2012 7:08:43 AM | Location : United States







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