edf40wrjww2CF_PaperMaster:Desc
1. T.Bone Puckett, a corporate raider, has acquired a textile company and is contemplating the
future of one of its major plants, located in South Carolina. There are three alternative decisions
are being considered: (1) expand, (2) Maintain, (3) Sell. The amount of profit that could be
earned by selling the plant in a year depends on foreign market condition. The following payoff
table describes this decision situation.
Foreign Competitive Condition
Decision Good Poor
Expand $ 800,000 $ 500,000
Maintain 1,300,000 -150,000
Sell 320,000 320,000
Determine the best crop to plant, using the following decision criteria
a. Maximax
b. Maximin
c. Minimax regret
d. Equal likelihood
Ans:
a.Maintain
Foreign Competitive
Condition
Decision Good Poor
Max Maximax
Expand $ 800,000 $ 500,000 800,000
Maintain 1,300,000 -150,000 1,300,000 1,300,000
Sell 320,000 320,000 320,000
b.Expand
Foreign Competitive
Condition
Decision Good Poor
Min Maximin
Expand $ 800,000 $ 500,000 500,000 500,000
Maintain 1,300,000 -150,000 -150,000
Sell 320,000 320,000 320,000
c.Expand
Regret Table
2
Foreign Competitive
Condition
Decision Good Poor
Max Minimax
Expand $ 500,000 $ 0 500,000 500,000
Maintain 0 650,000 650,000
Sell 980,000 180,000 980,000
d.Expand
Foreign Competitive
Condition
Decision Good Poor
Equal
Likelihood
Max
Expand $ 800,000 $ 500,000 1,300,000 1,300,000
Maintain 1,300,000 -150,000 1,150,000
Sell 320,000 320,000 640,000
2. In problem 1, now the research department has came up with a report regarding the future
foreign competitive condition. It is estimated that a probability ...