southland corporations decision to produce a new line of recreational products r
ID: 454979 • Letter: S
Question
southland corporations decision to produce a new line of recreational products resulted in the need to construct either a small plant or a large plant. The best selection of plant size depends on how the marketplace reacts to the new product line. To conduct an analysis, marketing mangement has decided to view the possible long-run demand as low, medium, or high. The following payoff table shows the projected profit in million of dollars.
long run demand
plantsize low medium high
small 150 200 200
large 50 200 500
A. what is the decision to be made, and what is the chance event for southland;s problem?
B. Construct an influence diagram
C. Construct a decision tree
D. Recommend a decision based on the use of the optimistic, conservative, and minimax regret approches.
Explanation / Answer
A. Decision may be based on the criteria to be used for comparison of the alternatives/options available keeping in view the likelihood of the future events. Events are about the long run demand being either low or medium or high. Decision to be taken is to have a small or large plant.
The Decision may be based on the coservative approach under which one tries to maximize the minimum gains, known as Maximin, The other criteria is based on extreme optimism and tries to maximize the maximum gain. There are other criterias between these two extremes with varying degree of pessimism or optimism, like the Hurwicz and the Laplace criterions. The Minimax Regret criterion is based upon the assumption that the decision-maker might experience regret after he has made the decision and the events have occured. The alternative selected is one that minimizes the maximum possible regret.
Minmax Regret-is for Small plant with maximum regret of $350 million
Gains Pay-off Matrix in million dollors Alternatives long run demand plantsize low medium High Minimum Maximum Small 150 200 200 150 200 Large 50 200 500 50 500 Optimistic approach- Maximax is for Large plant with gains of $ 500 million Conservative approach-Maximin is for Small plant with gains of $150 millionRelated Questions
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