Reference no: EM132813697
Question - An operations manager's staff has compiled the information below for four manufacturing alternatives (A, B, and C) that vary by production technology and the capacity of the machinery. All choices enable the same level of total production and have the same lifetime. The three states of nature represent three levels of consumer acceptance of the firm's products. Values in the table are net present value of future profits in millions of dollars.
|
|
States of Nature (Possible outcomes)
|
|
|
Level 1
|
Level 2
|
Level 3
|
|
Alternative A
|
50
|
55
|
60
|
|
Alternative B
|
30
|
50
|
80
|
|
Alternative C
|
-100
|
-10
|
150
|
Required -
a) If Maximin strategy were used, which would be chosen?
b) Assuming a Maximax strategy, which alternative would be chosen?
c) Assuming a Minimax Regret strategy, which alternative would be chosen?
d) If the states of nature were equally likely (Laplace Criterion), which alternative should be chosen?
e) Forecasts indicate that there is a 0.3 probability of acceptance level 1, 0.2 chance of acceptance level 2, and 0.5 change of acceptance level 3. Using the criterion of expected monetary value, which production alternative should be chosen?
f) How much should the operations manager be willing to pay for accurate information (i.e. what is the Expected Value of Perfect Information, EVPI?)?