Question: Edwards Machine Tools needs to purchase a new machine. The basic model is slower but costs less, while the advanced model is faster but costs
Edwards Machine Tools needs to purchase a new machine. The basic model is slower but costs less, while the advanced model is faster but costs more. Profitability will depend on future demand. The following table presents an estimate of profits over the next three years.
| Demand Volume | |||
| Decision | Low | Medium | High |
| Basic model | $90,000 | $95,000 | $130,000 |
| Advanced model | $50,000 | $95,000 | $190,000 |
The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.
Open spreadsheet
Given the uncertainty associated with the demand volume, and no other information to work with, how would you make a decision using maximax and maximin criteria?
Maximax Decision:
Advanced ModelBasic Model
Maximin Decision:
Advanced ModelBasic Model
Using the minimax regret criterion, calculate the maximum opportunity loss for each alternative and make a decision.
| Decision | Maximum Opportunity Loss |
| Basic model | $ fill in the blank 4 |
| Advanced model | $ fill in the blank 5 |
Opportunity Loss Decision:
Advanced ModelBasic Model
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