Given is a decision payoff table Future Demand Moderate 31 42 30 High Alternativ

Question

Given is a decision payoff table Future Demand Moderate 31 42 30 High Alternatives Low Small Facility 53 Medium Facility 29 Large Facility5 32 53 facility a) The best decision under uncertainty using MAXIMAX is to select facility b) The best decision under uncertainty using MAXIMIN is to select c) The best decision under uncertainty using LAPLACE EQUALITY LIKELY is to select facility d) If the probabilities for Future Demand when it is Low 0.35, Moderate expected monetary value (EMV) for the large facility 0.30, and High - 0.35, the e) If the probabilities for Future Demand when it is Low = 0.35, Moderate = 0.30, and High = 0.35, the best decision under risk is to select facility

Explanation / Answer

A.

Small facility or large facility

Under MaxiMax, the maximum payoff under each alternative is selected. Then, maximum of the maximum payoff are selected as final alternative. It is 53 for Small facility or large facility.

B.

Medium facility

Under MaxiMin, the minimum payoff under each alternative is selected. Then, maximum of the minimum payoff are selected as final alternative. It is 29 for medium facility.

C.

Equally likely demand for small facility = (1/3)*(53+31+22) = 35.33

Equally likely demand for medium facility = (1/3)*(29+42+32) = 34.33

Equally likely demand for large facility = (1/3)*(-5+30+53) = 26

So, the best decision to select the facility under equally likely criteria, is small facility.

D.

EMV for the large facility = .35*(-5) + .30*30 + .35*53 = 25.8

E.

EMV for the small facility =.35*53 + .30*31 + .35*22 = 35.55

EMV for the medium facility =.35*29 + .30*42 + .35*32 = 33.95

EMV for the large facility = .35*(-5) + .30*30 + .35*53 = 25.8

So, the best decision is to select small facility.

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