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Determine the best investment, using the following decision criteria: a) Maximin b) Equal Likelihood c) Minimax Regret

Determine the best investment, using the following decision criteria: a) Maximin b) Equal Likelihood c) Minimax Regret

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Determine the best investment, using the following decision criteria:

a) Maximin

b) Equal Likelihood

c) Minimax Regret

d) Hurwicz )alpha = 0.40)

e) Maximax

f) What coefficient of pessimism should an investor so that he is indifferent on his decision to either invest in restaurant or theater?

A local real estate investor in Manila is considering three alternative investments: a motel, a restaurant, or a theater. Profits from the motel or restaurant will be affected by the availability of gasoline and the number of tourists; profits from the theater will be relatively stable under any conditions. The following payoff table shows the profits or loss that result from each investment: Investment Motel Restaurant Theater Shortage (PhP80,000) 20,000 60,000 Gasoline Availability Stable Supply PhP150,000 80,000 60,000 Surplus PhP200,000 60,000 50,000
Transcribed Image Text:A local real estate investor in Manila is considering three alternative investments: a motel, a restaurant, or a theater. Profits from the motel or restaurant will be affected by the availability of gasoline and the number of tourists; profits from the theater will be relatively stable under any conditions. The following payoff table shows the profits or loss that result from each investment: Investment Motel Restaurant Theater Shortage (PhP80,000) 20,000 60,000 Gasoline Availability Stable Supply PhP150,000 80,000 60,000 Surplus PhP200,000 60,000 50,000
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d) Hurwicz )alpha = 0.40)

e) Maximax

f) What coefficient of pessimism should an investor so that he is indifferent on his decision to either invest in restaurant or theater?

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