APC industries has been experiencing significant growth and has been having difficulty meeting customerdemands recently. They are considering three options to address this issue. They can move to a largerfacility, add a second shift or use a subcontractor to assist in production. The annual payoff of each optiondepends on if the current market continues to expand, hold steady or declines. The expected payoff for eachcombination is show in the table below Option Expand Steady DeclineMove to largerfacility250,000 125,000 -90,000Add a secondshift175,000 80000 -45,000Subcontract 90,000 15,000 -10,000a) Which alternative should APC choose under the maximax criterion? (1 mark)b) Which option should APC choose under the maximin criterion? (1 mark)c) Which option should APC choose under the LaPlace criterion? (2 marks)d) Which option should APC choose with the Hurwicz criterion with α = 0.5? (2 marks)e) Using a minimax regret approach, what alternative should she choose? (4 marks)f) After reading about economic predictions, APC has assigned the probability that the market willbe expand , or be steady or be weak at 20%, 50% and 30 %. Using expected monetary values,what option should be chosen and what is that optimal expected value? (4 marks)g) What is the most that the APC should be willing to pay for additional information? Use ExpectedRegret (3 marks)h) Use the alternative method to verify EVPI (3 marks
APC industries has been experiencing significant growth and has been having difficulty meeting customer
demands recently. They are considering three options to address this issue. They can move to a larger
facility, add a second shift or use a subcontractor to assist in production. The annual payoff of each option
depends on if the current market continues to expand, hold steady or declines. The expected payoff for each
combination is show in the table below
Option Expand Steady Decline
Move to larger
facility
250,000 125,000 -90,000
Add a second
shift
175,000 80000 -45,000
Subcontract 90,000 15,000 -10,000
a) Which alternative should APC choose under the maximax criterion? (1 mark)
b) Which option should APC choose under the maximin criterion? (1 mark)
c) Which option should APC choose under the LaPlace criterion? (2 marks)
d) Which option should APC choose with the Hurwicz criterion with α = 0.5? (2 marks)
e) Using a minimax regret approach, what alternative should she choose? (4 marks)
f) After reading about economic predictions, APC has assigned the probability that the market will
be expand , or be steady or be weak at 20%, 50% and 30 %. Using
what option should be chosen and what is that optimal expected value? (4 marks)
g) What is the most that the APC should be willing to pay for additional information? Use Expected
Regret (3 marks)
h) Use the alternative method to verify EVPI (3 marks
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