A small building contractor has recently experienced two successive years in which work opportunities exceeded the firm’s capacity. The contractor must now make a decision on capacity for next year. Estimated profits under each of the two possible states of nature are as shown in the table below. NEXT YEAR'S DEMAND Alternative Low High Do nothing $ 50 * $ 60 Expand 20 80 Subcontract 40 70 * Profit in $ thousands. Which alternative should be selected if the decision criterion is (Enter your answers in thousands. Omit the "$" sign in your response.) Criterion Payoff Alternative a. Maximax $ (Click to select) Subcontract Expand Do Nothing or Subcontract Do Nothing or Expand Expand or Subcontract Do Nothing b. Maximin $ (Click to select) Subcontract Do Nothing or Expand Expand or Subcontract Expand Do Nothing Do Nothing or Subcontract c. Laplace $ (Click to select) Do Nothing or Expand Do Nothing or Subcontract Expand or Subcontract Expand Do Nothing Subcontract d. Minimax regret $ (Click to select) Expand Do Nothing or Expand Do Nothing Do Nothing or Subcontract Expand or Subcontract Subcontract

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 30P

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A small building contractor has recently experienced two successive years in which work opportunities exceeded the firm’s capacity. The contractor must now make a decision on capacity for next year. Estimated profits under each of the two possible states of nature are as shown in the table below.

	NEXT YEAR'S DEMAND
Alternative	Low	High
Do nothing	$	50	*	$	60
Expand		20			80
Subcontract		40			70

* Profit in $ thousands.

Which alternative should be selected if the decision criterion is (Enter your answers in thousands. Omit the "$" sign in your response.)

Criterion	Payoff	Alternative
a.	Maximax	$	(Click to select) Subcontract Expand Do Nothing or Subcontract Do Nothing or Expand Expand or Subcontract Do Nothing
b.	Maximin	$	(Click to select) Subcontract Do Nothing or Expand Expand or Subcontract Expand Do Nothing Do Nothing or Subcontract
c.	Laplace	$	(Click to select) Do Nothing or Expand Do Nothing or Subcontract Expand or Subcontract Expand Do Nothing Subcontract
d.	Minimax regret	$	(Click to select) Expand Do Nothing or Expand Do Nothing Do Nothing or Subcontract Expand or Subcontract Subcontract

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