A small building contractor has recently experienced two successive years in which work opportunities exceeded the firm’s capacity. The contractor must now make a decision on the capacity for the next year. Estimated profits under each of the two possible states of nature are shown in the table below. The units are in P thousands. Which alternative should be selected if the decision criterion is: a. Maximax? b. Maximin? c. Laplace? d. Minimax regret?
A small building contractor has recently experienced two successive years in which work opportunities exceeded the firm’s capacity. The contractor must now make a decision on the capacity for the next year. Estimated profits under each of the two possible states of nature are shown in the table below. The units are in P thousands. Which alternative should be selected if the decision criterion is: a. Maximax? b. Maximin? c. Laplace? d. Minimax regret?
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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: A small building contractor has recently experienced two successive years in which work opportunities
exceeded the firm’s capacity. The contractor must now make a decision on the capacity for the next year.
Estimated profits under each of the two possible states of nature are shown in the table below. The units are in P thousands.
Which alternative should be selected if the decision criterion is:
a. Maximax?
b. Maximin?
c. Laplace?
d. Minimax regret?
Transcribed Image Text:Next Year's Demand
Alternative
Low
High
Do nothing
P50*
P60
Expand
20
80
Subcontract
40
70
*Profit in P thousands
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