Practical Management Science
Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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Edwards Machine Tools needs to purchase a new machine. The basic model is slower but costs less, whereas the advanced model is faster but costs more. Profitability will depend on future demand. The following table presents an estimate of profits over the next three years.

 

  Demand Volume
Decision Low Medium High
Basic model $65,000   $100,000   $180,000  
Advanced model $55,000   $105,000   $205,000  

 

Fill in the table below for maximum and minimum profit payoffs under each model. Round your answers to the nearest dollar.

 

Decision alternative Maximum Minimum
Basic model  $   $ 
Advanced model  $   $ 

 

Calculate the amounts foregone by not adopting the optimal course of action for each possible demand level. Determine the maximum opportunity cost for each model. Fill in the table below. If your answer is zero, enter "0". Round your answers to the nearest dollar.

 

Opportunity Loss Matrix Future events
Decision alternative Low Medium High Maximum
Basic model  $   $   $   $ 
Advanced model  $   $   $   $ 

 

Given the uncertainty associated with the demand volume, and no other information to work with, what decision would you make?

The aggressive strategy (maximax) is to choose the  .

The conservative strategy (maximin) is to choose the  .

The opportunity loss strategy is to choose the  .

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