Build-Rite Construction has received favorable publicity from guest appearances

Question

Build-Rite Construction has received favorable publicity from guest appearances on a public TV home improvement program. Public TV programming decisions seem to be unpredictable, so Build-Rite cannot estimate the probability of continued benefits from its relationship with the show. Demand for home improvements next year may be either low or high. But Build-Rite must decide now whether to hire more employees, do nothing, or develop subcontracts with other home improvement contractors. Build-Rite has developed the following payoff table Demand for Home Improvements Moderate $207,000 174,000 $140,000 Alternative Hire Subcontract Do nothing Low ($86,000) $64,000 $71,000 High $545,000 $373,000 $336,000 Which alternative is best, according to each of the following decision criteria? a. The best decision according to maximin criterion is alternative decision is $. (Enter your response as an integer) b. The best decision according to maximax criterion is alternative decision is $. (Enter your response as an integer) c. The best decision according to laplace criterion is alternative | and the payoff for this and the payoff for this | and the weighted payoff for this

Explanation / Answer

A)

Maximin (Pessimist)

cHOOSE THE WORST POSSIBLE OF SITUATIONS AND PICK THE BEST

yOU WOULD CHOOSE 64000 BECAUSE IT IS ROW MINIMUM AND PICK THE LARGEST PAYOFF IN THE COLUMN:

YOU WILL GO WITH HIRE AND THE PAYOFF IS 86000

(B)

Maximax (Optimist)

CHOOSE THE BEST OF THE BEST.

YOU WILL GO WITH HIGH DEMAND AND THE BEST PAYOFF HERE IS 545000. SO YOU CHOOSE HIRE

(c)

cHOOSE THE OPTION THAT GIVE MAXIMUM AVERAGE

yOU CHOOSE HIRE. aND THE MAXIMUM PAYOFF IS 545000

e) minimax criterion:

Choose the maximum payoff column and go for the minimum

you will go with high column and choose the minimum payoff i.e. 336000. so yo choose to do nothing

Demand forhome improements aLTERNATE LOW MODERATE HIGH aVERAGE HIRE 86000 207000 545000 279333.333 SUBCONTRACT 64000 174000 373000 203666.667 DO NOTHING 71000 140000 336000 182333.333

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