The advertising manager for Roadside Restaurants, Inc., needs to decide whether

Question

The advertising manager for Roadside Restaurants, Inc., needs to decide whether to spend this month's budget for advertising on print media, television, or a mixture of the two. She estimates that the cost per thousand "hits" (readers or viewers) will vary depending upon the success of the new cable television network she plans to use, as follows:

If she uses the maximax criterion, which advertising strategy will she use?

Strategy Cable Network Successful Failure Print $ 10 10 Mixed 4 14 Television 1 21

Explanation / Answer

Maximax criterion is based on optimistic approach. It seeks to maximize the maximum payoff.

We are dealing with cost per thousand hits, so payoff is negative. Hence the lesser the better. Maximum payoff = minimum cost.

Maximum payoff of Print = -10 (same irrespective of success or failure of cable network)

Maximum payoff of Mixed = -4 (if cable network is successful)

Maximum payoff of Television = -1 (if cable network is successful)

The maximum of the above is -1, pertaining to Television.

So as per Maximax criterion, she will use Television advertising media.

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