The construction manager must decide whether to build single-family homes, apart
ID: 346782 • Letter: T
Question
The construction manager must decide whether to build single-family homes, apartments, or condominiums. He estimates annual profits (in $000) will vary with the population trend as follows:
Declining Stable Growing
Single Fam 200 90 70
Apartment 70 170 90
Condo -20 100 220
Which kind of dwellings will he build using? Must show work.
a) Maximax
b) Maximin
c) Laplace
d) Minimax regret
Explanation / Answer
Declining Stable Growing
Single Fam 200 90 70
Apartment 70 170 90
Condo -20 100 220
Maximax Approach:-
First of all select the best pay off in all the plans-
Single Farm = 200
Apartment =170
Condo = 220
The best pay off among all these is 220 of Condo of growing option so it should be selected
For maximin:-
Maximin Approach:- In this the worst offs are selected first:-
Single Farm = 70
Apartment =70
Condo = -20
The best in all these worst payoff is 70 related to Single Farm (Growing ) and Apartment (Declining) . SO any of these plans can be selected.
Minimax Regret:-
Regret = Best Payoff –Payoff received
Declining Stable Growing
Single Fam 200 -200 =0 170- 90=80 220-70=150
Apartment 200- 70=130 170 -170=0 220-90=110
Condo 200-(-20)=220 170- 100=70 220-220=0
So regret table:-
Declining Stable Growing
Single Fam 0 80 150
Apartment 130 0 110
Condo 220 70 0
Now select maximum regret =
Single Farm =150
Apartment=130
Condo=220
The minimum regret is 130 so Apartment(Declining) should be selected
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