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MCQs: Minimax regret & Expected value of perfect information

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Please show the working behind the correct choice.

The new owner of a beauty shop is trying to decide whether to hire one, two, or three beauticians. She estimates that profits next year (in thousands of dollars) will vary with demand for her services and has estimated demand in three categories: low, medium and high.

NUMBER OF BEAUTICIANS DEMAND
Low medium high
one 50 75 100
two 0 100 100
three -100 70 300

2) If she uses the minimax regret criterion, how many beauticians will she decide to hire?
a. one
b. two
c. three
d. either one or two
e. either two or three

3) If she feels the chances of low, medium, and high demand are 50%, 20%, and 30% respectively, what is her expected value of perfect information?
a. $48,000
b. $65,500
c. $81,000
d. $85,000
e. $104,000

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Solution Summary

The solution provides step by step method for the decision making based on minimax regret criterion and expected value of perfect information. Formula for the calculation and Interpretations of the results are also included.

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