Reference no: EM133506680

Question

DALOL Mountain Bicycle Shop is considering three options for its facility next year. Owner of the shop can expand his current shop, move to a larger facility, or make no change. With a good market, the annual payoff would be $76,000 if he expands, $90,000 if he moves, and $40000 if he does nothing. With an average market, his payoffs will be $30,000 $41,000 and $15,000, respectively. With a poor market, his payoff will be -$17,000, -$28,000, and $4,000, respectively

a. Which option should the shop owner choose if he uses the maximax criterion?

b. Which option should the shop owner if he uses the maximin criterion?

c. Which option should the shop owner choose if he uses the equally likely criterion?

d. Which option should the shop owner choose if he uses the criterion of realism with α=0.4?

e. Which option should the shop owner choose if he uses the minimax regret criterion?

f. Ethiopian Economic commission has estimated that next year the chance for aggregate market to be good is 60%. Based this, which option(s) do you recommend based on Expected monetary value and minimax regret criterion? How much should the shop owner pay for additional information?