able Average Unfavorable Market $280,000 $15,000 $8,000 S0 Alternatives Market $
ID: 431148 • Letter: A
Question
able Average Unfavorable Market $280,000 $15,000 $8,000 S0 Alternatives Market $300,000 $160,000 $120,000 $0 $100,000 $70,000 50 Overtime Do Nothing ing the decision making under uncertainty with the criterion of Maximax The appropriate decision will be The value of the return under this decision is S Using the decision making under uncertainty with the criterion of Maximin The appropriate decision will be The value of the return under this decision is c) Using the decision making under uncertainty with the criterion of Equally Likely The appropriate decision will beExplanation / Answer
A.
Under the MaxiMax criteria,
Appropriate decision will be Build new plant.
Value is $300000.
It is the maximum value of the maximum return of all the alternatives.
B.
Under the MaxiMin Criteria,
Appropriate decision will be Do nothing.
Value is $0.
It is the maximum of the minimum return of all the alternatives.
C.
Under the equally likely criteria,
Value under the build new plant = 1/3*(300000 + 210000 - 280000) = $76666.67
Value under the subcontract = 1/3*(160000 + 100000 – 15000) = $81666.67
Value under the overtime = 1/3*(120000 + 70000 -8000) = $60666.67
Value under Do nothing = $0
So,
The appropriate decision will be subcontract.
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