Operations Management: Processes and Supply Chains (11th Edition)
11th Edition
ISBN: 9780133872132
Author: Lee J. Krajewski, Manoj K. Malhotra, Larry P. Ritzman
Publisher: PEARSON
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Chapter D, Problem 2DQ
Summary Introduction
Interpretation: The reasoning behind modifying the optimal solution from mathematical models in view of the other non-quantifiable and/or judgmental business information in the situation should be determined.
Concept Introduction: The mathematical models and solutions are based on the precise equations which can be formed. However, business does not operate in the oasis of exactness of mathematics. Such optimal decisions, therefore, are required to be moderated with other factors (especially judgmental) present in the situation.
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A financial institution is considering investing in a portfolio of stocks. How can decision theory guide the institution in selecting the optimal mix of stocks based on expected returns and risk preferences?
3 II |
Here are the changes to the original problem and the revised conditions for this decision-making problem:
With a favorable market, John Thompson thinks a large facility would result in a net profit of $195,000 to his
firm.
If the market is unfavorable, the construction of a large facility would result in $185,000 net loss.
A small plant would result in a net profit of $110,000 in a favorable market, but a net loss of $25,000 would
occur if the market was unfavorable.
Doing nothing would result in $0 profit in either market conditions.
a) Create a decision table,
b) What is your recommendation if you would apply the Maximax criterion (Optimistic)? Follow the guidance
from your textbook and create a table.
c) What is your recommendation if you would apply the Maximin Criterion (Pessimistic)? Follow the guidance
from your textbook and create a table.
d) What is your recommendation if you would apply the Criterion of Realism (Hurwicz Criterion) with a
coefficient of realism a =…
Chapter D Solutions
Operations Management: Processes and Supply Chains (11th Edition)
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