The operations manager of the Electric Sheep Division of Block C Enterprises has
ID: 1128320 • Letter: T
Question
The operations manager of the Electric Sheep Division of Block C Enterprises has compiled data for the capacity expansion of their factory. Based upon four different economic state for the next two years, a decision must be made either to increase capacity or do nothing. A payoff table has been created as follows that shows the expected profits in thousands of dollars Economic Expanding Stable No State Recession Growth 40 10 -40 Large Medium 40 Small 70 45 20 -10 35 35 30 25 30 30 30 40 Do Nothing Using the MINIMAX REGRET criterion, determine the NUMERICAL VALUE, in thousands of dollars, used to make the capacity decision.Explanation / Answer
In step 1, a regret table will be prepared. To prepare the regret table, under each economic state, highest payoff is identified and then, payoff of each investment alternative is subtracted from the maximum payoff.
Economic State
Expanding
Stable
No Growth
Recession
Large
0
5
20
80
Medium
30
0
10
50
Small
35
10
0
15
Do Nothing
40
15
0
0
In step 2, the regret table will be prepared. It will be prepared by the selection of the maximum regret under the each investment alternative.
Economic State
Maximum Regret
Large
80
Medium
50
Small
35
Do Nothing
40
In final step 3, the minimum regret will be selected and it is $35000 with small investment alternative that will give the minimum regret among all the alternatives. So, small capacity expansion plan should be selected.
Economic State
Expanding
Stable
No Growth
Recession
Large
0
5
20
80
Medium
30
0
10
50
Small
35
10
0
15
Do Nothing
40
15
0
0
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