Using the Payoff table below, choose the optimum Production Process by calculati

Question

Using the Payoff table below, choose the optimum Production Process by calculating the Maximin Criterion. The manufacturer is confident with a Coefficient of Realism of 60% that the new product will be a success. Choose the Production Process by calculating the Criterion of Realism. To understand the largest amount of regret the manufacturer might have. Choose the Production Process by calculating the Minimax Regret Criterion. Using the same Payoff table above in Part (a) (i), the manufacturer knows that for all previous new products 30% have met a low demand, 25% have met a moderate demand and 45% have met a high demand. Calculate the Expected Monetary Value through a Decision Tree, which Production Process would be selected? Does the decision made in Part (b) (i) change if the following information is given?

Explanation / Answer

Ans.3 b(ii) The term utility is the measure of preference of indiviuals having various alternatives ( production process) available to them.

Here the decision will change because the decision maker will select that production process which optimizes (maximizes or minimizes) the expected utility rather than expected monetary value.

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