Southland Corporation's decision to produce a new line of recreational products has resulted in the need to choose one of two automated manufacturing systems based on proposals from two vendors, A and B. The economics of this decision depends on the market reaction to the new product line. The possible long-run demand has been defined as low, medium, or high. Based on detailed financial analyses of system costs as a function of volume and sales under each demand scenario, the following payoff table gives the projected profits in millions of dollars. Long-Run Demand Decision Vendor A Vendor B Low Medium $150 $150 a. Determine the best decisions using the maximax, maximin, and opportunity loss decision criteria. Using the maximax criterion, choose -Select- Using the maximin criterion, choose -Select- To minimize the maximum opportunity loss, choose -Select- b. Assume that the best estimate of the probability of low long-run demand is 0.25, of medium long-run demand is 0.10, and of high long-run demand is 0.65. What is the best decision using the expected value criterion? Round your answers to two decimal places. The expected payoff for Vendor A is $ million. The expected payoff for Vendor B is $ Choose -Select- million. High $60 $70 $500 $200
Southland Corporation's decision to produce a new line of recreational products has resulted in the need to choose one of two automated manufacturing systems based on proposals from two vendors, A and B. The economics of this decision depends on the market reaction to the new product line. The possible long-run demand has been defined as low, medium, or high. Based on detailed financial analyses of system costs as a function of volume and sales under each demand scenario, the following payoff table gives the projected profits in millions of dollars. Long-Run Demand Decision Vendor A Vendor B Low Medium $150 $150 a. Determine the best decisions using the maximax, maximin, and opportunity loss decision criteria. Using the maximax criterion, choose -Select- Using the maximin criterion, choose -Select- To minimize the maximum opportunity loss, choose -Select- b. Assume that the best estimate of the probability of low long-run demand is 0.25, of medium long-run demand is 0.10, and of high long-run demand is 0.65. What is the best decision using the expected value criterion? Round your answers to two decimal places. The expected payoff for Vendor A is $ million. The expected payoff for Vendor B is $ Choose -Select- million. High $60 $70 $500 $200
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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Transcribed Image Text:Southland Corporation's decision to produce a new line of recreational products has resulted in the need to choose one of two automated
manufacturing systems based on proposals from two vendors, A and B. The economics of this decision depends on the market reaction to the new
product line. The possible long-run demand has been defined as low, medium, or high. Based on detailed financial analyses of system costs as a
function of volume and sales under each demand scenario, the following payoff table gives the projected profits in millions of dollars.
Long-Run Demand
Decision
Vendor A
Vendor B
Low
Medium
$150
$150
a. Determine the best decisions using the maximax, maximin, and opportunity loss decision criteria.
Using the maximax criterion, choose -Select-
Using the maximin criterion, choose -Select-
To minimize the maximum opportunity loss, choose -Select-
b. Assume that the best estimate of the probability of low long-run demand is 0.25, of medium long-run demand is 0.10, and of high long-run
demand is 0.65. What is the best decision using the expected value criterion? Round your answers to two decimal places.
The expected payoff for Vendor A is $
million.
The expected payoff for Vendor B is $
Choose -Select-
million.
High
$60
$70
$500
$200
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