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.
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 | Low | Medium | High | |||
| Vendor A | $70 | $140 | $490 | |||
| Vendor B | $110 | $140 | $140 |
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Determine the best decisions using the maximax, maximin, and opportunity loss decision criteria.
Using the maximax criterion, choose .
Using the maximin criterion, choose .
To minimize the maximum opportunity loss, choose .
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Assume that the best estimate of the probability of low long-run demand is 0.20, of medium long-run demand is 0.05, and of high long-run demand is 0.75. 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 $ million.
Choose . vendor a or vendor b
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