Question

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Even though independent gasoline stations have been having a difficult time, Susan Solomon has been thinking about starting her own independent gasoline station. Susan’s problem is to decide how large her station should be. The annual returns will depend on both the size of her station and a number of marketing factors related to the oil industry and demand for gasoline. After a careful analysis, Susan developed the following table: Size of first station good market Fair market poor market

Good MArket Fair Market Poor Market

Small 50,000 20,000 -10,000

Medium 80,000 30,000 -20,000

Large 100,000 30,000 -40,000

Very large 300,000 25,000 -160,000

For example, if Susan and the market is good, she will realize a profit of $50,000.

(a) Develop a decision table for this decision. (b) What is the maximax decision? (c) What is the maximin decision? (d) What is the equally likely decision? (e) What is the criterion of realism decision? Use an a value of 0.8. (f) Develop an opportunity loss table. (g) What is the minimax regret decision?

Answer 1