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Adding more floor space to meet increasing demand

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Reference no: EM132249398

R. J owns a health and fitness center in Toronto. He is considering adding more floor space to meet increasing demand. He will either add no floor space (N), a moderate area of floor space (M), a large area of floor space (L), or an area of floor space that doubles the size of the facility (D). Demand will either stay fixed, increase slightly, or increase greatly. The following are the changes in R. J manual profits under each combination of expansion level and demand change level:  

Expansion Level

Demand Changes N M L D

Fixed $ 0 -$4,000 -$10,000 -$50,000

Slight increase $2,000 $8,000 $6,000 $4,000

Major increase $3,000 $9,000 $20,000 $40,000

R. J. is risk avers and wishes to use the maximin criterion

a. What are his decision alternatives and what are the states of nature?

b. What should he do?

Reference no: EM132249398

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