Scribd
Upload
75 views2 pages

Decision Analysis

Decision Analysis Answer

Uploaded by

Ira Grace De Castro
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
75 views2 pages

Decision Analysis

Decision Analysis Answer

Uploaded by

Ira Grace De Castro
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

Ira Grace B. De Castro.

ACN1 | CAED101

Long-Run Demand
Plant Size Low (s1) Medium (s2) High (s3)
Small (d1) 150 200 200
Large (d2) 50 200 500

Table 1. Minimum and Maximum Payoff Values

Plant Size Minimum Payoff Maximum Payoff


Small 150 200
Large 50 500

A. Optimistic Approach

Maximum of the maximum payoff values – Large Plant = $500,000,000

B. Conservative Approach

Maximum of the minimum payoff values – Small Plant = $150,000,000

C. Minimax Approach

Table 2. Opportunity Loss or Regret

State of Nature
Decision Alternative Low (s1) Medium (s2) High (s3)
0 0 300
Small (d1)
(150 – 150) (200 – 200) (500 – 200)
100 0 0
Large (d2)
(150 – 50) (200 – 200) (500 – 500)

Table 3. Maximum Regret for Each Alternative

Decision Alternative Maximum Regret


Small (d1) 300
Large (d2) 100

Minimum of the maximum regret – Large Plant = $100,000,000


State of Nature
Decision Alternative (s1) (s2) (s3)
(d1) 250 100 25
(d2) 100 100 75

EV (di) = ∑𝑁
𝑗=1 𝑃(𝑆𝑗 )𝑉𝑖𝑗

EV (d1) = 0.65(250) + 0.15(100) + 0.20(25) = 162.5 + 15 + 5 = 182.5 ∿ $182,000,000


EV (d2) = 0.65(100) + 0.15(100) + 0.20(75) = 65 + 15 + 15 = 95 ∿ $95,000,000
Under the expected value approach (without perfect information), the small plant size (d1) is the
recommended decision with an expected value of $182,500,000.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy