1. A small building contractor has recently experienced two successive years in which work opportunities exceeded the firm's capacity. The contractor must now make a decision on capacity for next year. Estimated profits under each of the two possible states of nature are as shown in the table below. Which alternative should be selected if the decision criterion is: it. Maximax? 6. Maximin c. Laplace? d. Minimax regret? NEXT YEAR'S DEMAND Alternative Low High Do nothing S50- S60 Expand 80 Subcontract 40 70 "Pratit in thousands 2. Refer to Problem 1. Suppose after a certain amount of discussion, the contractor is able to subjectively assess the probabilities of low and high demand: Pllow) = 3 and thigh = 7 a. Determine the expected profit of each alternative Which alternative is best? Why? b. Analyze the problem using a decision tree. Show the expected profit of cach alternative on the tro. c. Compute the expected value of perfect information. How could the contractor use this knowledge 3. Refer to Problems and 2. Construct a graph that will enable you to perform sensitivity analysis on the problem. Over what range of high would the alternative of doing nothing he best? Expand? Subcontract