Ken Golden has just purchased a franchise from Paper Warehouse to open a party goods store in a newly developed suburb of Orlando, Florida. Paper Warehouse offers three sizes of stores that...

Ken Golden has just purchased a franchise from Paper Warehouse to open a party goods store in a newly developed suburb of Orlando, Florida. Paper Warehouse offers three sizes of stores that franchisees can develop: Standard Store—4000 square feet, Super Store—6500 square feet, or Mega Store—8500 square feet. Ken estimates the present worth profitability of this store will be based on the size of the store he selects to build as well as the number of competing party goods stores that will open in the suburb. He feels that between one and four stores will open to compete with his. Ken has developed the following payoff table (showing estimated present worth profits in $ 10,000s) to help him in his decision making.

a. If Ken is an optimistic decision maker, what size store should he open?

b. If Ken wishes to minimize his maximum regret, what size store should he open?

 c. Ken believes that there is a 50% chance that two competing stores will open and that the likelihood that four competing stores will open is half the likelihood that three competing stores will open and three times the likelihood that one competing store will open. If Ken uses the expected value criterion, which size store should he open?