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Pay Off problems

Shawn would like to open his own business in MA. He is considering opening a clothing store or opening a cake shop i. His decision depends upon whether or not there is any competition for the clothing store or the cake shop. The following payoff table gives details of the states, decision, and outcomes.

Decision Competition No Competition
Clothing store 15,000 25,000
Cake Shop 9,000 11,000

What choice should be made based on Maximax criterion?
A) Clothing shop
B) Cake shop
C) Both
D) None of the above

An organization is looking into changing the way they are handling airport operations. Currently they are having a mixture of its own employees and handling agents. The manager would like to run his ideas by you first to figure out what would be the best scenario to focus on. The expected earnings are shown in the table below.

Decision Best Worst
Own staff $20,000 $0
Own staff and handling agent $30,000 $10,000
Outsource $40,000 $-5,000

What decision should be made based on Maximin criterion?
A) Best
B) Worst
C) Outsource
D) Own staff and handling agent.

Solution Preview

According to BusinessDictionary.com, the "Maximax criterion" is defined as "In decision theory, the optimistic (aggressive) decision making rule under conditions of uncertainty. It states that the decision maker should select the course of action whose best (maximum) gain is better than the best gain of all other courses of action possible in given circumstances."

In this case, the best ...

Solution Summary

This solution illustrates how to select projects using the maximax and maximin criteria.

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