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Maximax and Maximin Strategies

5. At Acme Home Products, Inc. the operations manager's staff has developed information for four manufacturing process, refereed to as T, R, Q, P. These process alternatives vary by production technology and the capacity of the machinery used. All choices enable the same level of total production, and the machinery used has the same lifetime. The four states of nature represent four levels of consumer acceptance of the firm's products. Management has estimated the dollar value associated with each state of nature in the table below. the dollar amounts are net present value of future profits in millions of dollars. Show all required calculations needed in developing your responses.

States Of Nature
1 2 3 4
Process T 40 75 60 160
Process R 30 50 80 70
Process Q 70 155 70 50
Process P -160 20 150 145

a) Assuming a maximax strategy, which alternative would be chosen?
b) If maximin strategy were used, which would be chosen?
c) If the states of nature were equally likely, which alternative should be chosen?
d) If the Operations Manager was a very optimistic person, what alternative do you think would most likely be chosen and why?

Solution Preview

T: 160

Maximax: T

Minimum in row
T 40
R ...

Solution Summary

The solution discusses maximax and maximin strategies