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Decision using Maximax, Maximin, Laplace and Minimax regret

1.      A small building contractor has recently experienced two successive years in which work opportunities exceeded the firm's capacity. The contractor must now make a decision on capacity for next year. Estimate profits under each of the two possible states of nature are as shown in the table below. Which alternative should be selected if the decision criterion is:

a.       Maximax?
b.      Maximin?
c.       Laplace?
d.      Minimax regret?

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1.      A small building contractor has recently experienced two successive years in which work opportunities exceeded the firm's capacity. The contractor must now make a decision on capacity for next year. Estimate profits under each of the two possible states of nature are as shown in the table below. Which alternative should be selected if the decision criterion is
a.       Maximax?
b.      Maximin?
c.       Laplace?
d.      Minimax regret?
Next Year's Demand
Alternative Low High
Do nothing $50* $60
Expand 20 80
Subcontract 40 70
*Profit in $ thousands

a.       Maximax?

The maximax criterion selects the alternative that maximizes the maximum pay-off. It maximizes profit ...

Solution Summary

Uses Maximax, Maximin, Laplace and Minimax regret criteria to select an alternative and arrive at a decision.

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