Question 3: Decision Analysis with and without probabilities Tabuk Housing Corporation's (THC) decision to construct a housing compound resulted in the need to construct either Villas, Condominiums, or Apartments buildings in a lot of land it recently acquired. The best selection of buildings type depends on how the marketplace reacts to housing project. To conduct an analysis, marketing management has decided to view the possible long-run demand as low, medium, or high. The following payoff table shows the projected profit in millions of dollars: Service Demand Low Medium High Villas $100 $20 -$50 Condominiums Apartments $80 $50 $30 $70 $60 $50 A) Recommend a decision based on the use of the optimistic, conservative, and minimax regret approaches. B) Suppose that management of THC believes that the probability of High demand is 0.5, the probability of Medium demand is 0.3 and the probability of Low demand is 0.2. Draw the decision tree (showing probabilities and payoffs) and Use the expected value approach to determine an optimal decision.

Purchasing and Supply Chain Management
6th Edition
ISBN:9781285869681
Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
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Question 3: Decision Analysis with and without probabilities
Tabuk Housing Corporation's (THC) decision to construct a housing compound resulted in the
need to construct either Villas, Condominiums, or Apartments buildings in a lot of land it recently
acquired. The best selection of buildings type depends on how the marketplace reacts to housing
project. To conduct an analysis, marketing management has decided to view the possible long-run
demand as low, medium, or high. The following payoff table shows the projected profit in millions
of dollars:
Service
Demand
Low
Medium
High
Villas
$100
$20
-$50
Condominiums
Apartments
$80
$50
$30
$70
$60
$50
A) Recommend a decision based on the use of the optimistic, conservative, and minimax regret
approaches.
B) Suppose that management of THC believes that the probability of High demand is 0.5, the
probability of Medium demand is 0.3 and the probability of Low demand is 0.2. Draw the
decision tree (showing probabilities and payoffs) and Use the expected value approach to
determine an optimal decision.
Transcribed Image Text:Question 3: Decision Analysis with and without probabilities Tabuk Housing Corporation's (THC) decision to construct a housing compound resulted in the need to construct either Villas, Condominiums, or Apartments buildings in a lot of land it recently acquired. The best selection of buildings type depends on how the marketplace reacts to housing project. To conduct an analysis, marketing management has decided to view the possible long-run demand as low, medium, or high. The following payoff table shows the projected profit in millions of dollars: Service Demand Low Medium High Villas $100 $20 -$50 Condominiums Apartments $80 $50 $30 $70 $60 $50 A) Recommend a decision based on the use of the optimistic, conservative, and minimax regret approaches. B) Suppose that management of THC believes that the probability of High demand is 0.5, the probability of Medium demand is 0.3 and the probability of Low demand is 0.2. Draw the decision tree (showing probabilities and payoffs) and Use the expected value approach to determine an optimal decision.
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