Question 1:
The Brampton Honda Dealership is considering expanding its showroom facility. The following
table shows the 3 alternatives, the states of nature and their payoffs:
Small
Facility
Medium
Facility
Large
Facility
Low demand
$30,000
$25,000
-$20,000
Medium demand
$30,000
$50,000
$20,000
High demand
$27,000
$48,000
$65,000
What would your decision be if the following rules are applied? (show your calculation)
a)
b)
c)
d)
Maximax
Maximin
La Place
Minimax-regret
The regret value, is calculated by (the best payoff under this state of nature) - (minus the
payoff of the decision) = Value
Small facility
$0
$0
$3,000
Medium facility
$25,000
$0
$2,000
Large facility
$-85000
$45,000
$0
Medium Facility will provide Minimax regret in any demand level.
Worst
$-85000
$0
$0
Question 2:
A local KFC franchisee is evaluating the number of fried chickens to produce each day. The
following table shows the 4 alternatives, the states of nature and their payoffs:
Daily Supply
Daily
Demand
40
50
60
70
40
$80
$80
$80
$80
50
$0
$100
$100
$100
60
-$80
$20
$120
$120
70
-$160
-$60
$40
$140
What would your decision be if the following rules are applied? (show your calculation)
a)
b)
c)
d)
Maximax
Maximin
La Place
Minimax-regret
Maximin – Find out the worst possible payoff for all the alternatives, and then select the best
worst
Daily supply of 50 Fried chicken is the optimum as per the demand, as at any demand
level the company will profit 100 dollars even on 40 chicken demand the company will
break even. Which is the best out of all the worst option.