A plant manager is considering buying additional stamping machines to accommodat

Question

A plant manager is considering buying additional stamping machines to accommodate increasing demand. The alternatives are to buy 1 machine, 2 machines, or 3 machines. The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not. The payoff table below illustrates the profits realized (in $000's) based on the different scenarios faced by the manager Alternative Bid Accepted Bid Rejected Buy 1 machine $10 $5 Buy 2 machines $30 $4 Buy 3 machines $40 $2 Using the information above, which alternative should be chosen based on the maximin criterion?

Explanation / Answer

Buy 1 Machine    $10        $5

Buy 2 machine     $30   $4

Buy 3 Machine      $40    $ 2

using the maximin criterion we need to select the scenario with min money

$5

$4

$2

and then we will select the maximum value for each alterantive

so the alternative using maximin criterion is BUY 1 MACHINE

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