Given is a decision payoff table. a) The best decision under uncertainty using M

Question

Given is a decision payoff table. a) The best decision under uncertainty using MAXIMAX is to select facility b) The best decision under uncertainty using MAXIMIN is to select facility c) The best decision under uncertainty using LAPLACE/EQUALITY LIKELY is to select I 1 facility d) If the probabilities for Future Demand when it is Low = 0.35, Moderate = 0.30, and High = 0.35, the expected monetary value (EMV) for the large facility = 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

MAXIMAX APPROACH ALTERNATIVES LOW MODERATE HIGH BEST SMALL FACILITY 14 12 13 14 MEDIUM FACILITY -1 17 23 23 LARGE FACILITY -5 11 29 29 AS 29 IS THE HIGHEST VALUE AMONG THE OTHER HIGHEST VALUES IN THE RESPECTIVE ROWS, THUS, THE BEST DECISION UNDER UNCERTAINITY USING MAXIMAX IS TO SELECT LARGE FACILITY. MAXIMIN APPROACH ALTERNATIVES LOW MODERATE HIGH WORST SMALL FACILITY 14 12 13 12 MEDIUM FACILITY -1 17 23 -1 LARGE FACILITY -5 11 29 -5 AS 12 IS THE HIGHEST VALUE AMONG THE OTHER WORST VALUES IN THE RESPECTIVE ROWS, THUS, THE BEST DECISION UNDER UNCERTAINITY USING MAXIMIN IS TO SELECT SMALL FACILITY. LAPLACE/EQUALITY LIKELY APPROACH: ALTERNATIVES LOW MODERATE HIGH AVERAGE SMALL FACILITY 14 12 13 (14+12+13)/3 = 13 MEDIUM FACILITY -1 17 23 ((-1)+17+23)/3 = 13 LARGE FACILITY -5 11 29 ((-5)+11+29)/3 = 11.66 IN THE ABOVE CASE THE BEST OF THE AVERAGE VALUES OF THE VALUES IN THE RESPECTIVE ROWS IS 13. THUS, THE BEST DECISION UNDER UNCERTAINITY USING LAPLACE/EQUALITY LIKELY APPROACH IS TO SELECT BOTH SMALL AND MEDIUM FACILITY. EMV ALTERNATIVES LOW (0.35) MODERATE HIGH EMV VALUES -0.3 -0.35 SMALL FACILITY 14 12 13 13.05 MEDIUM FACILITY -1 17 23 12.8 LARGE FACILITY -5 11 29 11.7 SMALL FACILITY = 14*0.35 + 12*0.30 + 13*0.35 = 13.05 MEDIUM FACILITY = -1*0.35 + 17*0.30 + 23*0.35 = 12.8 LARGE FACILITY = -5*0.35 + 11*0.30 + 29*0.35 = 11.7 THUS, THE EXPECTED MONETARY VALUE FOR LARGE FACILITY IS 11.7 BEST DECISION UNDER RISK: ALTERNATIVES LOW (0.35) MODERATE HIGH EMV VALUES -0.3 -0.35 SMALL FACILITY 14 12 13 13.05 MEDIUM FACILITY -1 17 23 12.8 LARGE FACILITY -5 11 29 11.7 SMALL FACILITY = 14*0.35 + 12*0.30 + 13*0.35 = 13.05 MEDIUM FACILITY = -1*0.35 + 17*0.30 + 23*0.35 = 12.8 LARGE FACILITY = -5*0.35 + 11*0.30 + 29*0.35 = 11.7 AS 13.05 CAME OUT TO IS THE HIGHEST VALUE BASED ON THE ABOVE CALCULATIONS. THUS, THE BEST DECISION UNDER RISK IS TO SELECT SMALL FACILITY.

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