Today\'s Electronics specializes in manufacturing modern electronic components.

Question

Today's Electronics specializes in manufacturing modern electronic components. It also builds the equipment that produces the components. Phyllis, who is responsible for advising the president of Today's Electronics on electronic manufacturing equipment, has developed the following table concerning a proposed facilit Strong Market 550 300 200 0.5 Profit (S 1000) Fair Market 110 129 100 0.3 Poor Market -310 100 32 0.2 Large Facility Medium Facility Small Facil1 Probability (a) Which action would an optimistic (maximax) decision maker choose? (b) Which action would a pessimistic (maximin) decision maker choose? (c) What is the best alternative using the expected monetary value (EMV) analysis?

Explanation / Answer

(a) Here for maximax decision we will compare the maximum profit for each alternative.

Here We can see the maximum values are

For large = $ 550

For medium = $ 300

For Small = $ 200

The maximax decision maker = 550 (in $ 1000s)

(b) Here for maximin decision we will compare the minimum profit for each alternative.

Here We can see the Minimum values are

For large = -310

For medium = -100

For Small = -32

The maximum value out of all minimum = -32 ($ 1000s)

So we will choose small facility.

(c) Expected Monetary value for

(i) Large Facitlity = 0.5 * 550 + 0.3 * 110 + 0.2 * (-310) = $ 246 ($ 1000)

(ii) Mediuym Facility =  0.5 * 300 + 0.3 * 129 + 0.2 * (-100) = $ 168.7 ($ 1000)

(iii) Small facility = 0.5 * 200 + 0.3 * 100 + 0.2 * (- 32) = 123.6 ($ 1000)

so best alternative is Large facitlity developmet

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