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The Lee Company must choose between two mutually exclusive alternatives. With alternative 1 an inferior product will be marketed that is best suited to low levels of demand whereas alternative 2 is a superiorproduct that is best suited to high levels of demand. There are only two possible levels of demand - high and low and the probabilities of each event occurring is 0.5. The predicted profits for each alterative are:

Low demand(R)High demand (R)

Alternative1350,000560,000

Alternative235,000700,000

Refer to Figure 12-3 and assume that the probabilities of 0.5 for high and 0.5 for low demand are changed to 0.6 and 0.4 respectively. How would the change in probabilities change the values used to apply themaximax, maximin and regret criteria?

All of the values would increase

All of the values would decrease.

Some values would increase and others would decrease.

The values would remain unchanged.

The Tamesek Company is considering purchasing one of two mutually exclusive machines. Machine A is most suited to low levels of demand whereas machine B is suited to high-level demand. There are only two possible outcomes and each has the same level of probability. The estimated profits for each demand levelare as follows:

Low demand(R)High demand (R)

Machine A 140,000224,000

Machine B 14,000280,000

There is a possibility of employing a firm of management consultants who would be able to provide a perfect prediction of actual demand. What is the maximum amount that the company would be prepared to pay forthe additional information?

R98,000

R14,000

R70,000

None of the above