The CrystalTip Company has a production plan. The company wants to determine which of their premium products to concentrate on producing for the next few months. The Payoff table presented below shows the decision alternatives, states of nature (level of demand) and the payoffs (profits). Payoff (profit 000) states of nature Alternatives Option Low Moderate High Putpletip $1500 $5,500 $8,000 Goldtip -$150 $6,250 $10,500 Silvertip -$300 $7,000 $12,600 (a) Which alternative should the manager choose under the maximax criterion? (b) Which option should the manager choose under the maximin criterion? (c) Which option should the manager choose under the LaPlace criterion? (d) Which option should the manager choose with the Hurwicz criterion with α = 0.7? (e) Using a minimax regret approach, what alternative should be chosen? (f) After reading about economic predictions, the manager has assigned the probability of low, moderate or high at 40%, 30% and 30% respectively. Using expected monetary values, what option should be chosen and what is the optimal expected value?
The CrystalTip Company has a production plan. The company wants to determine which of
their premium products to concentrate on producing for the next few months. The Payoff
table presented below shows the decision alternatives, states of nature (level of demand)
and the payoffs (profits).
Payoff (profit 000)
states of nature
Alternatives
Option Low Moderate High
Putpletip $1500 $5,500 $8,000
Goldtip -$150 $6,250 $10,500
Silvertip -$300 $7,000 $12,600
(a) Which alternative should the manager choose under the maximax criterion?
(b) Which option should the manager choose under the maximin criterion?
(c) Which option should the manager choose under the LaPlace criterion?
(d) Which option should the manager choose with the Hurwicz criterion with α = 0.7?
(e) Using a minimax regret approach, what alternative should be chosen?
(f) After reading about economic predictions, the manager has assigned the probability of low,
moderate or high at 40%, 30% and 30% respectively. Using expected monetary values, what
option should be chosen and what is the optimal expected value?
(g) What is the most that should be paid for additional information? Use Expected Regret )
(h) Use the alternative method to verify EVPI
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