Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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( Use an excel sheet to show formulas used )
Transcribed Image Text:1. A small building contractor has recently experienced two successive years in which work opportu-
nities 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. Which alternative should be selected if the decision criterion is:
a. Maximax?
b. Maximin?
c. Laplace?
d. Minimax regret?
NEXT YEAR'S
DEMAND
Alternative
Low
High
Do nothing
$50*
$60
Expand
20
80
Subcontract
40
70
*Profit in $ thousands.
2. Refer to Problem 1. Suppose after a certain amount of discussion, the contractor is able to subjec-
%3D
%3D
tively assess the probabilities of low and high demand: P(low) = .3 and P(high) = .7.
a. Determine the expected profit of each alternative. Which alternative is best? Why?
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