2) T arketing department has discovered a potential in convinced the CEO to buil

Question

2) T arketing department has discovered a potential in convinced the CEO to build a new plan taking you OM c marketing d location and then you (after t in that location. However, the CEO want ourse) to provide advice concerning the capacity of the plant to be built. epartment suspects four types of future market conditions and they provide ated payoffs in case a given size of the plant is selected and if a given future condition occurs. The information provided by the marketing department is summarized in the following payoff table. Use the MAXIMAX, MAXIMIN, LAPLACE, and the MINIMAX REGRET criteria and tell the CEO which size of the plant would be preferable under each decision criteria. Payoff table (in million S) 14 18 20 10 verylarget-10- Large Medium Small Very small8 14 18 20 25 10 20 13 12 8

Explanation / Answer

Maximax Criteria- Here that payoff is selected where return is highest among these alternatives

Verylarge- 20

Large- 32

Medium-20

Small-32

Verysmall-20

Here maximum is 32 so euther Large or small should be choosen

Minimax- Here minimum of the maximum is choosen

Verylarge- 20

Large- 32

Medium-20

Small-32

Verysmall-20

Here minimum of these value is 20, so either of very large, medium or verysmall should be choosen.

Maximin- Here maximum value of the minimum is selected

Verylarge- 8

Large- 4

Medium-3

Small-10

Verysmall-4

Maximum among these is 10 so small should be choosen.

Laplace= Alterative with best average payoff selected

Verylarge- 80/6=13.33

Large- 97/6=16.17

Medium-91/6=15.17

Small-101/6=16.83

Verysmall-69/6=11.5

Best average pay off is alternative small so it should be choosen.

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