Compute opportunity loss or regret matrix which decision

Reference no: EM13396061

S&B Manufacturing Inc., a manufacturer of packaging products is attempting to select a short run strategy which maximizes the long run value of expected future profits. Their long run value will depend upon their competitor's response. The controller projects the following expected future profits, cost and revenue equations.

States of Nature

S&B's

Decision

Alternatives

Maximize

Revenue

Maximize

Profits

Maximize Revenue

$6 million

$8 million

Maximize Profit

$2 million

$14 million

TR = 1600q -2q²

P = 1600-2q

MR = 1600 -4q

q = 50L^1/2k^1/2

MP_L=25L^-1/2k^1/2

MP_K=25L^1/2k^-1/2

Price of Labor = $25

Price of Capital = $100

MC = 2

A) Which decision alternative should S&B chose given a maximin criterion?

B) Calculate the opportunity loss or regret matrix.

C) Which decision alternative should S&B chose given a minimax regret criterion?

D) Given your answer to part A compute following:

1. Optimal Price

2. Optimal Output

3 Optimal Quantity of Labor

4. Optimal Quantity of Capital

5. For their optimal output calculate Marginal Product of Capital and Marginal Product of Labor.

6. For their optimal output what is the Marginal Rate of Technical Substitution?

7. For their optimal output show whether they using the least cost combination of labor and capital?

Reference no: EM13396061

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