For the question #4 in Homework #1, we developed the following decision table fo
ID: 3206231 • Letter: F
Question
For the question #4 in Homework #1, we developed the following decision table for Ken who is the owner of OilCo. Answer the following questions based on this problem. Which equipment should be selected based on the minimax regret criterion? The probabilities for the market have been determined to be 60% for favorable market and 40% for unfavorable market. Which equipment should be selected to maximize the expected profit of the operation? What is the expected value of perfect information in this situation? which equipment would minimize the expected opportunity loss?Explanation / Answer
(a) First, we make the opportunity loss table using finding the best decision in each state of nature, and comparing the other to that one. The opportunity loss table is shown here.
The minimax regret decision is to choose Texan.
(b)
Sub100 location should be selected to maximize the expected cost of operation.
(c) The expected value of perfect information in this situation is
(d) Texan minimize the expected opportunity loss.
States of Nature Minimax Regret EOL Alternatives Favorable Unfavorable Maximum Sub100 230000 150000 230000 198000 Oiler J 190000 110000 190000 158000 Texan 0 0 0 0 Probability 0.6 0.4