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Analysis of decision; develop of decision table & loss table

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Even though independent gasoline stations have been having a difficult time, Susan Solomon has been thinking about starting her own independent gasoline station. Susan's problem is to decide how large her station should be. The annual returns will depend on both the size of her station and a number of marketing factors related to the oil industry and demand for gasoline. After a careful analysis, Susan developed the following table: SIZE OF First Station GOOD MARKET($) FAIR MARKET($) POOR MARKET($) Small 50,00020,000 -10,000 Medium 80,00030,000 -20,000 Large 100,000 30,000 -40,000 Very large 300,000 25,000-160,000 For example, if Susan constructs a small station and the market is good, she will realize a profit of $50,000. (a) Develop a decision table for this decision. (b) What is the maximum decision? (c) What is the maximin decision? (d) What is the equally likely decision? (e) What is the criterion of realism decision? Use an a value of 0.8. (f) Develop an opportunity loss table? (g) What is the minimax regret decision?

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Solution Summary

This post shows how to develop decision table and loss table. It discusses about the maximum, minimum and equally decision. It tells about the minimax regret decision

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Even though independent gasoline stations have been having a difficult time, Susan Solomon has been thinking about starting her own independent gasoline station. Susan's problem is to decide how large her station should be. The annual returns will depend on both the size of her station and a number of marketing factors related to the oil industry and demand for gasoline. After a careful analysis, Susan developed the following table: SIZE OF First Station GOOD MARKET($) FAIR MARKET($) POOR MARKET($) Small 50,00020,000 -10,000 Medium 80,00030,000 -20,000 Large 100,000 30,000 -40,000 Very large 300,000 25,000-160,000 For example, if Susan constructs a small station and the market is good, she will realize a profit of $50,000.

(a) Develop a decision table for this decision.

Size Good Market Fair Market Poor Market
Small $50,000 $20,000 ($10,000)
Decisions Medium $80,000 $30,000 ($20,000)
large $100,000 $30,000 ($40,000)
Very large $300,000 $25,000 ($160,000)

(b) What is the maximum decision?
The maximax criterion focus only on the best that can happen to us. Here is how it works.
1. For each decision alternative, determine its maximum payoff from any state of nature.
2. Determine the maximum of these maximum ...

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