Today’s Electronics specializes in manufacturing modern electronic components. I
ID: 3062111 • Letter: T
Question
Today’s Electronics specializes in manufacturing modern electronic components. It also builds the equipment that produces the components. Phyllis Weinberger, who is responsible for advising the president of Today’s Electronics on electronic manufacturing equipment, has developed the following table concerning a proposed facility: STRONG MARKET Fair Market POOR Market Large Facility 550,000 110,000 -310,000 Medium-sized facility 300,00 129,000 -100,000 Small Facility 200,000 100,000 - 32,000 No Facility 0 0 0 (a) Develop an opportunity loss table. (b) What is the minimax regret decision? Please show work and and explain how you got the answer
Explanation / Answer
Solution:
(a) Best alternative for strong, fair and poor market is having large facility with a payoff of $550,000;medium-sized facility with a payoff of $129,000 and no facility with a payoff of $0, respectively. Wehave the opportunity loss table as following:
MAXIMUM
IN A ROW($)
(b) Based on the table, we can see that having medium-sized facility has the lowest opportunity loss;therefore, Today’s Electronics should have medium-sized facility.
PROFIT ($)MAXIMUM
IN A ROW($)
STRONG MARKET FAIR MARKET POOR MARKET Large facility 550,000 – 550,000= 0 129,000 – 110,000= 19,000 0 – (–310,000)= 310,000 310,000 Medium-sized facility 550,000 – 300,000= 250,000 129,000 – 129,000= 0 0 – (–100,000)= 100,000 250,000 Small facility 550,000 – 200,000= 350,000 129,000 – 100,000= 29,000 0 – (–32,000)= 32,000 350,000 No facility 550,000 – 0= 550,000 129,000 – 0= 129,000 0 – 0= 0 550,000