A souvenir retailer has an opportunity to establish a new location inside a larg

Question

A souvenir retailer has an opportunity to establish a new location inside a large airport. The annual returns will depend primarily on the size of the space she rents and if the economy will be favorable. The retailer has worked with the airport concession commission, and has projected the following possible annual earnings associated with renting a small, medium, large or very large space:

Size Good Economy Fair Economy Poor Economy

Small $70,000 $28,000 -$14,000

Medium $112,000 $ 42,000 -$28,000

Large $ 140,000 $42,000 -$56,000

Very Large $ 420,000 $35,000 -$224,000

a) What is the souvenir retailer's maximax decision?

b) What is her maximin decision?

c) What is her equally likely decision?

d) What is her criterion of realism decision, using? = 0.8?

e) What is her minimax decision?

Explanation / Answer

a)Very Large b)Small c)avg of Small = 8000 of medium =42000 of large =42000 of very large =77000 So medium and large are equally likely d)for small 0.8*70000-0.2*14000 =53200 medium =0.8*112000-0.2*28000=84000 Large = 0.8*140000-0.2*56000=100800 Very large = 0.8*420000-0.2*224000=291200 So decision is very Large e)small

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