Edwards Machine Tools needs to purchase a new machine. The basic model is slower but costs less, whereas 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	$70,000		$105,000		$145,000
Advanced model	$60,000		$110,000		$200,000

Fill in the table below for maximum and minimum profit payoffs under each model. Round your answers to the nearest dollar.

1.

Decision alternative	Maximum	Minimum
Basic model	$	$
Advanced model	$	$

Calculate the amounts foregone by not adopting the optimal course of action for each possible demand level. Determine the maximum opportunity cost for each model. Fill in the table below. If your answer is zero, enter "0". Round your answers to the nearest dollar.

2.

Opportunity Loss Matrix		Future events
Decision alternative	Low	Medium	High	Maximum
Basic model	$	$	$	$
Advanced model	$	$	$	$

Given the uncertainty associated with the demand volume, and no other information to work with, what decision would you make?

a. The aggressive strategy (maximax) is to choose the -Select- (Advanced model or Basic Model)

b. The conservative strategy (maximin) is to choose the -Select- (Advanced Model or Basic Model)

c. The opportunity loss strategy is to choose the -Select- (Advanced Model or Basic Model)

\begin{tabular}{|l|l|r|r|r|r|r|l|} \cline { 2 - 7 } & Opportunity Loss Matrix & Future Events & & & & \\ 16 & Decision Alternative & Low Product Demand & High Product Demand & & & & Maximum \\ \hline 17 & Expand existing plant & $0.00 & $150,000.00 & & & & $150,000.00 \\ \hline 18 & Build new plant & $100,000.00 & $0.00 & & & & \\ \hline 19 & & & & & & & \\ \hline 21 & & & & & & \\ \hline & & & & & & & \\ \hline \end{tabular}