Abc inc must make a decision on its current capacity for next year . Estimates p

Question

Abc inc must make a decision on its current capacity for next year . Estimates profits in (000s) based on next years demand are shown in the table below
Next year demand Alternative low high Expand 100. 200 Subcontract 50. 120 Do nothing 40 . 50

Using this information above , which alternative should be chosen based on Laplace criterion Abc inc must make a decision on its current capacity for next year . Estimates profits in (000s) based on next years demand are shown in the table below
Next year demand Alternative low high Expand 100. 200 Subcontract 50. 120 Do nothing 40 . 50

Using this information above , which alternative should be chosen based on Laplace criterion
Next year demand Alternative low high Expand 100. 200 Subcontract 50. 120 Do nothing 40 . 50

Using this information above , which alternative should be chosen based on Laplace criterion

Explanation / Answer

This criterion is based on the principle of insufficient reason and was developed by Thomas Bayels and supported by simon de laplace. The equally likely decision criterion finds that alternative with the higest average outcome. The decision maker first calculates the average outcome for every alternative. Average outcome for every course of action is nothing but simple arithmetic mean of pay – offs under each action. Then select the act with maximum average outcome. By using this criterion it is possible to convert a decision problem under certainty with equal
probability of each state of nature.

Here maximum profit is for Expanding so we choose Expand option

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