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?

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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
point show?


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