Pittsburgh Development corporation (PDC) purchased land that will be the site of a new luxury condominium complex. The location provides a spectacular view of downtown Pittsburgh and the Golden Triangle. For this project, the PDC decision problem is to select the size of the new luxury condominium project that will lead to the largest profit given the uncertainty concerning the demand for condominium units. PDC has the following 3 decision alternatives:
Pittsburgh Development corporation (PDC) purchased land that will be the site of a new luxury condominium complex. The location provides a spectacular view of downtown Pittsburgh and the Golden Triangle. For this project, the PDC decision problem is to select the size of the new luxury condominium project that will lead to the largest profit given the uncertainty concerning the demand for condominium units.
PDC has the following 3 decision alternatives:
d1 = a small complex of 30 condominium units
d2 = a medium complex of 60 condominium units
d3 = a large complex of 90 condominium units
For this problem, the chance
s1: strong demand for the condominium ; p(s1)= 0.80
s2: weak demand for the condominium ; p(s2)= 0.20
The payoff table associated with the PDC Condominium project (in $ Millions) is as follows:
|
States of Nature |
||
|
Decision alternative |
Strong demand, s1 |
Weak demand, s2 |
|
Small complex, d1 |
8 |
7 |
|
Medium complex, d2 |
14 |
5 |
|
Large complex, d3 |
20 |
-9 |
What will you recommend to PDC using the following criterion?
- MAXIMAX
- MAXIMIN
- MINIMAX REGRET
- REALISM, WITH alpha = 0.6
EXPECTED MONETARY VALUE - How much is PDC willing to pay to obtain more accurate information about the market?
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