Quantitative Analysis 3-17 - Respond based on max criteria - Must be in Excel wi
ID: 445989 • Letter: Q
Question
Quantitative Analysis
3-17 - Respond based on max criteria - Must be in Excel with fomula within the cell (if formula was used to calculate)
Kenneth Bown is the principle owner of Brown Oil Inc. After quitting his University teaching job, Ken has been able to increase his annual salary by a fractor of over 100. At the present time Ken is forced to consider purchasing some more equipment for Brown Oil due to competition. His altrenatives are below
Equipment Favorable Market Unfavorbale Market
Sub100 300,000 -200,000
Oiler J 250,000 -100,000
Texan 75,000 -18,000
For example is Ken purchases Sub 100 and if there is a favorable market, he will realize a profit of 300,000. On the other hand, if the market is unfavorable, Ken would suffer the loss of 200,000. But Ken has always been an optimistic decision maker.
(a) What type of decision is Ken facing?
(b) What decision criterion should be used?
(c) What alternative is best?
Explanation / Answer
Ans a - Ken is facing decision under uncertainty.
Ans b - Ken should use the Maximax criterion as he is an optimistic decision maker.
Ans c - The Sub 100 alternative is best as it gives the maximum payoff with the maximax criterion. Payoff of $300000.