A firm wishes to choose the location for a new factory. Profits obtained will depend on whether

Question:

A firm wishes to choose the location for a new factory. Profits obtained will depend on whether a new railroad spur is constructed to serve the town in which the new factory will be located. The second payoff table at the bottom of the page summarizes the relevant information. Determine the location that should be chosen if the firm uses
a. The maximin criterion.
b. The maximax criterion.

No New Railroad Spur New Railroad Alternatives Spur Built $1* $14 Location A Location B 2 10 Location C