Question

A manager is deciding whether or not to build a small facility. Demand is uncertain and can be either at a high or low level. If the manager chooses a small facility and demand is low, the payoff is $30. If the manager chooses a small facility and demand is high, the payoff is $10. On the other hand, if the manager chooses a large facility and demand is low, the payoff is -$20, but if demand is high, the payoff is $80. Develop the decision table. What would be the best decision based on the maximax criterion? What would be the best decision based on Hurwicz's criterion of realism using α = 0.6?

Subject: Quantitative Analysis

Format: Please use MS format and not pictures.

Answer 1

* Best decision based on manimax criterion=large facility
maximum in the two facilities is $30 and $80 of which $80 is the maximum so larger
facility satisfies maximax
*best decision based on maximax criterion = small facility
minimum in the two facilities is $10 and _$20 which $10 is the maximum ,so smaller facility
satisfies maximax maxmin.
*best decision based on minimax regret=large facility
maximum in the two facilities is $30 and$80 of which $30 the minimum so larger facility
satisfies minimax regret
using α=0.6 but there large facility
satisfies minimax regret
so,α also satisfies regret