Given the following conditional value table: Definitions: Maximax: A criterion t

Question

Given the following conditional value table:

Definitions:

Maximax: A criterion that finds an alternative that maximizes the maximum outcome (appropriate for profit)

Maximin: A criterion that finds and alternative that maximizes the minimum outcome (appropriate for profit)

Equally Likely: A criterion that assigns equal probability to each state of nature.

Questions

a) Using the decision making under uncertainty with the criterion of Maximax:

The appropriate 'Alternative' decision will be _____

The value of the return under this decision is $ _____

b) Using the decision making under uncertainty with the criterion of Maximin:

The appropriate 'Alternative' decision will be _____

The value of the return under this decision is $ _____

c) Using the decision making under uncertainty with the criterion of Equally Likely:

The appropriate 'Alternative' decision will be _____

The value of the return under this decision is $ _____

Alternatives Very Favorable Market Average Market Unfavorable Market Build new plant 250,000 180,000 -200,000 subcontract 270,000 185,000 -220,000 overtime 100,000 50,000 -12,000 do nothing 0 0 0

Explanation / Answer

a) Using the decision making under uncertainty with the criterion of Maximax:

Alternative decision: Subcontract

Return: $270,000

b) Using the decision making under uncertainty with the criterion of Maximin:

Alternative decision: Do nothing

Return: $0

c) Using the decision making under uncertainty with the criterion of Equally Likely:

Alternative decision: Subcontract

Return: $78333.33

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