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A fashion magazine is considering adjusting its advertising rates for the coming year. e payoffs for these strategies will vary according to demand as follows:

A fashion magazine is considering adjusting its advertising rates for the coming year. e payoffs for these strategies will vary according to demand as follows:

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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**Problem 2: Decision-making for Advertising Rate Adjustments** A fashion magazine is considering adjusting its advertising rates for the coming year. The possible payoffs for these strategies will vary according to demand as follows: | Strategy | Low Demand | Moderate Demand | High Demand | |-------------------------|------------|-----------------|-------------| | Raise rates by 50% | -9 | 6 | 12 | | Raise rates by 20% | -4 | 7 | 10 | | Hold rates constant | -3 | 5 | 8 | | Reduce rates by 20% | 3 | 4 | 6 | **Questions:** a) Which strategy is best according to the maximax criterion? b) Which strategy is best according to the maximin criterion? c) Which strategy is best according to the Laplace criterion? d) Which strategy is best according to the minimax regret criterion? **Explanation:** The table presents different strategies with their corresponding payoffs under varying demand conditions. Each strategy affects the magazine’s payoffs, either positively or negatively, based on the level of demand. The decision criteria listed are different methods for evaluating these strategies considering different risk preferences.
Transcribed Image Text:**Problem 2: Decision-making for Advertising Rate Adjustments** A fashion magazine is considering adjusting its advertising rates for the coming year. The possible payoffs for these strategies will vary according to demand as follows: | Strategy | Low Demand | Moderate Demand | High Demand | |-------------------------|------------|-----------------|-------------| | Raise rates by 50% | -9 | 6 | 12 | | Raise rates by 20% | -4 | 7 | 10 | | Hold rates constant | -3 | 5 | 8 | | Reduce rates by 20% | 3 | 4 | 6 | **Questions:** a) Which strategy is best according to the maximax criterion? b) Which strategy is best according to the maximin criterion? c) Which strategy is best according to the Laplace criterion? d) Which strategy is best according to the minimax regret criterion? **Explanation:** The table presents different strategies with their corresponding payoffs under varying demand conditions. Each strategy affects the magazine’s payoffs, either positively or negatively, based on the level of demand. The decision criteria listed are different methods for evaluating these strategies considering different risk preferences.
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