The alternatives 1 and 2 in the following payoff (profit) table represent the tw
ID: 3245917 • Letter: T
Question
The alternatives 1 and 2 in the following payoff (profit) table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt. The level of demand affects the success of both strategies. The states of nature (Si) represent the levels of demand for the company products. S1, S2 and S3 characterize high, medium, and low demand respectively. The payoff values are in thousands of dollars.
States of nature
s1
s2
s3
Alternative (strategy) 1
10
40
70
Alternative (strategy) 2
60
120
50
Question: The best alternative (course of action) for the EKA manufacturing company using the optimistic approach is ___________________________________ and the best possible payoff is ______________.
The best alternative (course of action) for the EKA manufacturing company using the optimistic approach is __strategy 1_ and the best possible payoff is _120_.
The best alternative (course of action) for the EKA manufacturing company using the optimistic approach is __strategy 2_ and the best possible payoff is _120_.
The best alternative (course of action) for the EKA manufacturing company using the optimistic approach is __strategy 1_ and the best possible payoff is _70_.
The best alternative (course of action) for the EKA manufacturing company using the optimistic approach is __strategy 2_ and the best possible payoff is _70_.
States of nature
s1
s2
s3
Alternative (strategy) 1
10
40
70
Alternative (strategy) 2
60
120
50
Question: The best alternative (course of action) for the EKA manufacturing company using the optimistic approach is ___________________________________ and the best possible payoff is ______________.
a.The best alternative (course of action) for the EKA manufacturing company using the optimistic approach is __strategy 1_ and the best possible payoff is _120_.
b.The best alternative (course of action) for the EKA manufacturing company using the optimistic approach is __strategy 2_ and the best possible payoff is _120_.
c.The best alternative (course of action) for the EKA manufacturing company using the optimistic approach is __strategy 1_ and the best possible payoff is _70_.
d.The best alternative (course of action) for the EKA manufacturing company using the optimistic approach is __strategy 2_ and the best possible payoff is _70_.
Explanation / Answer
Using the optimistic approach, we try to find the maximum possible payout and then opt for the alternative which gives that payout, in one of its cases.
Here, the maximum payout is 120, and it is given by strategy 2, so that is considered as the best alternative.
So, the answer is
The best alternative (course of action) for the EKA manufacturing company using the optimistic approach is strategy 2_ and the best possible payoff is _120_. (option b)
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