SMART Infrastructure Facility is a research institute that brings together experts from fields such as transport and modelling and simulation, to help
governments and business better plan for the future. PSA has submitted a proposal to
the Sydney Research Association (SRA) grant scheme. PSA will need two new academic
staff for managing the proposed project. The proposal is a two-month project and each
academic will work 40 hours/week. The salary rate for their position is $50/hour. There are
two possible outcomes for the submission: granted or not granted. If the proposal is granted,
PSA will receive $200,000 for covering purchase of necessary equipment ($100,000)
and academic staff costs. If the proposal is not funded, the University will give PSA
$80,000 plus the necessary equipment for the project. PSA wants to start this project
before the outcome of the grant is released.
C.4. Assume that there is an 80% chance that PSA will receive the grant. What
alternative should PSA choose if it adopts the Expected Opportunity Loss
approach for choosing an alternative?
C.5. Assume that PSA does not know the probabilities of the possible outcomes.
Then, create a graph, expected payoff (y-axis) versus probability of SMART receiving
the grant (x-axis). Find the crossover point in the designed graph. What does this
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