Edwards Machine Tools needs to purchase a new machine. The basic model is slower

Question

Edwards Machine Tools needs to purchase a new machine. The basic model is slower but costs less, whereas the advanced model is faster but costs more. Profitability will depend on future demand. The following table presents an estimate of profits over the next three years.

Fill in the table below for maximum and minimum profit payoffs under each model. Round your answers to the nearest dollar.

Calculate the amounts foregone by not adopting the optimal course of action for each possible demand level. Determine the maximum opportunity cost for each model. Fill in the table below. If your answer is zero, enter "0". Round your answers to the nearest dollar.

Given the uncertainty associated with the demand volume, and no other information to work with, what decision would you make?

The aggressive strategy (maximax) is to choose the -Select-advanced modelbasic modelItem 13 .

The conservative strategy (maximin) is to choose the -Select-advanced modelbasic modelItem 14 .

The opportunity loss strategy is to choose the -Select-advanced modelbasic modelItem 15 .

Demand Volume Decision Low Medium High Basic model $60,000 $110,000 $160,000 Advanced model $55,000 $125,000 $165,000

Explanation / Answer

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Maximax - Advanced model (max of the max's)
Maximin - Basic Model (max of the min's)
Opprotunity loss strategy (Minimax regret) - Advanced model (min of max opportunity losses)

Decision alternative Maximum Minimum Basic model $160,000 $60,000 Advanced model $165,000 $55,000

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