A large hypermarket based in Kuwait is considering different plans for expansion. The management has identified three possible alternatives: build two new stores, build one new store, or do nothing. The expected payoff will depend on future demand which might be low, moderate, or high. After a thoughtful analysis of the market, the hypermarket management has developed the following payoff table in Million Kuwaiti Dinar (KWD).

DEMAND ALTERNATIVES LOW MODERATE HIGH Build two new stores –8 –2 10 Build one new store –4 1 5 Do nothing 0 0.5 1

a) Identify the different decision alternatives and the different states of nature.

b) What is the best decision under the maximax, maximin, and equally likely decision criteria?

c) What should the company do? L01