Homework SourseGiven the payoff table below determine the appropriate decis
Given the pay-off table below, determine the appropriate decision under uncertainty using:
Minimax Regret
States of Nature-Outcomes
Alternatives
Very Favorable
Average
Unfavorable
Build New Plant
$350,000
$240,000
-$300,000
Subcontract
$180,000
$90,000
-$20,000
Overtime
$110,000
$60,000
-$10,000
Do Nothing
$0
$0
$0
| States of Nature-Outcomes | |||
| Alternatives | Very Favorable | Average | Unfavorable |
| Build New Plant | $350,000 | $240,000 | -$300,000 |
| Subcontract | $180,000 | $90,000 | -$20,000 |
| Overtime | $110,000 | $60,000 | -$10,000 |
| Do Nothing | $0 | $0 | $0 |
Solution
Solution :
Applying the minimax regret criteria the minimum regret value happens to be $ 170,000 and it is associated with the decision alternative subcontract . The table is shown below : -
| Alternatives | Very Favorable | Average | Unfavorable |
| Build New Plant | $0 | $0 | $290,000 |
| Subcontract | $170,000 | $150,000 | $10,000 |
| Overtime | $240,000 | $180,000 | $0 |
| Do Nothing | $350,000 | $240,000 | ($10,000) |
