Practical Management Science
Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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Answer A.2 a-e

a-c is in the picture here is d and e 

d) What is the qually likely decision?

e) Develop a decision tree. Assume each outcome is equally likely, then find the highest EMV.

...A.2 Even though independent gasoline stations have been
having a difficult time, Ian Langella has been thinking about
starting his own independent gasoline station. Ian's problem is to
decide how large his station should be. The annual returns will
depend on both the size of his station and a number of marketing
factors related to the oil industry and demand for gasoline. After
a careful analysis, Ian developed the following table:
SIZE OF FIRST
STATION
Small
Medium
Large
Very large
GOOD
MARKET
$ 50,000
$ 80,000
$100,000
$300,000
FAIR
MARKET
$20,000
$30,000
$30,000
$25,000
POOR
MARKET
-$ 10,000
-$20,000
-$ 40,000
-$160,000
For example, if Ian constructs a small station and the market is
good, he will realize a profit of $50,000.
a) Develop a decision table for this decision, like the one illus-
trated in Table A.2.
b) What is the maximax decision?
c) What is the maximin decision?
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Transcribed Image Text:...A.2 Even though independent gasoline stations have been having a difficult time, Ian Langella has been thinking about starting his own independent gasoline station. Ian's problem is to decide how large his station should be. The annual returns will depend on both the size of his station and a number of marketing factors related to the oil industry and demand for gasoline. After a careful analysis, Ian developed the following table: SIZE OF FIRST STATION Small Medium Large Very large GOOD MARKET $ 50,000 $ 80,000 $100,000 $300,000 FAIR MARKET $20,000 $30,000 $30,000 $25,000 POOR MARKET -$ 10,000 -$20,000 -$ 40,000 -$160,000 For example, if Ian constructs a small station and the market is good, he will realize a profit of $50,000. a) Develop a decision table for this decision, like the one illus- trated in Table A.2. b) What is the maximax decision? c) What is the maximin decision?
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