The owner of the Columbia Construction Company must decide between building a ho

Question

The owner of the Columbia Construction Company must decide between building a housing development, constructing a shopping center, and leasing all the company's equipment to another company. The profit that will result from each alternative will be determined by whether material costs remain stable or increase. The profit from each alternative, given the two possibilities for material costs, is shown in the following payoff table: Determine the best decision, using the following decision criteria. a. Maximax b. Maximin c. Minimax regret

Explanation / Answer

Ans:

a)Maximax approach:

The maximum payoff of maximums of respective decision is 105000,which is by investing in shopping center.

So,best decision is Shopping center.

b)Maximin approach:

The maximum payoff of minimums of  respective decision is 40000,which is by investing in Leasing.

So,best decision is Leasing.

c)Minimax Regret

Minimum of maximums of respective opportunity losses or regret is 20000,which is given by shopping center.

So best decision is Shopping center.

Decision Stable Increase Maximum Houses 70000 30000 70000 Shopping center 105000 20000 105000 Leasing 40000 40000 40000

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