3-29 Mick arra is the manager of MCz Drilling Prod- ucts, which produces a varie

Question

3-29 Mick arra is the manager of MCz Drilling Prod- ucts, which produces a variety of specialty valves for oil field equipment. Recent activity in the oil fields has caused demand to increase drastically, and a decision has been made to open a new manufactur- ing facility. Three locations are being considered, and the size of the facility would not be the same in each location. Thus, overtime might be necessary at times. The following table gives the total monthly cost (in $1,000s) for each possible location under each demand possibility. The probabilities for the demand levels have been determined to be 20% for low demand, 30% for medium demand, and 50% for high demand. DEMAND DEMAND DEMAND IS LOW IS MEDIUM IS HIGH Ardmore, OK 150 110 Sweetwater, TX 100 120 120 Lake Charles, LA 110 130 (a) Which location would be selected based on the optimistic criterion? (b) Which location would be selected based on the pessimistic criterion?

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Explanation / Answer

The given data in tabular form would be:

(a) We know that the optimistic criterion represents the maximum of the maxima. Here Ardmore, OK location would be selected based on the optimistic criterion.

(b) We know that the pessimistic criterion represents the maximum of the minima. Here lake Charles, LA location would be selected based on the pessimistic criterion.

Name Demand is low Demand is medium Demand is High Maximum Minimum Ardmore, Ok      85          110       150 150 85 Sweetwater, Tx      90          100       120 120 90 lake Charles, LA     110         120       130 130 110

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