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Southland Corporation's decision to produce a new line of recreational products has resulted in the need to choose one of two automated manufacturing systems based on proposals from two vendors, A and B. The economics of this decision depends on the market reaction to the new product line. The possible long-run demand has been defined as low, medium, or high. Based on detailed financial analyses of system costs as a function of volume and sales under each demand scenario, the following payoff table gives the projected profits in millions of dollars. Long-Run Demand Decision Vendor A Vendor B Low Medium $150 $150 a. Determine the best decisions using the maximax, maximin, and opportunity loss decision criteria. Using the maximax criterion, choose -Select- Using the maximin criterion, choose -Select- To minimize the maximum opportunity loss, choose -Select- b. Assume that the best estimate of the probability of low long-run demand is 0.25, of medium long-run demand is 0.10, and of high long-run demand is 0.65. What is the best decision using the expected value criterion? Round your answers to two decimal places. The expected payoff for Vendor A is $ million. The expected payoff for Vendor B is $ Choose -Select- million. High $60 $70 $500 $200

Southland Corporation's decision to produce a new line of recreational products has resulted in the need to choose one of two automated manufacturing systems based on proposals from two vendors, A and B. The economics of this decision depends on the market reaction to the new product line. The possible long-run demand has been defined as low, medium, or high. Based on detailed financial analyses of system costs as a function of volume and sales under each demand scenario, the following payoff table gives the projected profits in millions of dollars. Long-Run Demand Decision Vendor A Vendor B Low Medium $150 $150 a. Determine the best decisions using the maximax, maximin, and opportunity loss decision criteria. Using the maximax criterion, choose -Select- Using the maximin criterion, choose -Select- To minimize the maximum opportunity loss, choose -Select- b. Assume that the best estimate of the probability of low long-run demand is 0.25, of medium long-run demand is 0.10, and of high long-run demand is 0.65. What is the best decision using the expected value criterion? Round your answers to two decimal places. The expected payoff for Vendor A is $ million. The expected payoff for Vendor B is $ Choose -Select- million. High $60 $70 $500 $200

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter9: Decision Making Under Uncertainty
Section: Chapter Questions
Problem 46P
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Southland Corporation's decision to produce a new line of recreational products has resulted in the need to choose one of two automated manufacturing systems based on proposals from two vendors, A and B. The economics of this decision depends on the market reaction to the new product line. The possible long-run demand has been defined as low, medium, or high. Based on detailed financial analyses of system costs as a function of volume and sales under each demand scenario, the following payoff table gives the projected profits in millions of dollars. Long-Run Demand Decision Vendor A Vendor B Low Medium $150 $150 a. Determine the best decisions using the maximax, maximin, and opportunity loss decision criteria. Using the maximax criterion, choose -Select- Using the maximin criterion, choose -Select- To minimize the maximum opportunity loss, choose -Select- b. Assume that the best estimate of the probability of low long-run demand is 0.25, of medium long-run demand is 0.10, and of high long-run demand is 0.65. What is the best decision using the expected value criterion? Round your answers to two decimal places. The expected payoff for Vendor A is $ million. The expected payoff for Vendor B is $ Choose -Select- million. High $60 $70 $500 $200
Transcribed Image Text:Southland Corporation's decision to produce a new line of recreational products has resulted in the need to choose one of two automated manufacturing systems based on proposals from two vendors, A and B. The economics of this decision depends on the market reaction to the new product line. The possible long-run demand has been defined as low, medium, or high. Based on detailed financial analyses of system costs as a function of volume and sales under each demand scenario, the following payoff table gives the projected profits in millions of dollars. Long-Run Demand Decision Vendor A Vendor B Low Medium $150 $150 a. Determine the best decisions using the maximax, maximin, and opportunity loss decision criteria. Using the maximax criterion, choose -Select- Using the maximin criterion, choose -Select- To minimize the maximum opportunity loss, choose -Select- b. Assume that the best estimate of the probability of low long-run demand is 0.25, of medium long-run demand is 0.10, and of high long-run demand is 0.65. What is the best decision using the expected value criterion? Round your answers to two decimal places. The expected payoff for Vendor A is $ million. The expected payoff for Vendor B is $ Choose -Select- million. High $60 $70 $500 $200
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