Lafarge is a French industrial company specializing in three major products: cement, construction aggregates, and concrete. Lafarge Zambia operates 2 integrated cement plants (situated in Ndola and Lusaka) with a total production capacity of 1.4 million tonnes per annum. Lafarge Zambia is considering to develop a new plant in the central province of Zambia. The following three options available. These are to open a small plant, a medium-sized plant, or no plant at all. The marketing department has advised that the market for a plant in central province can be good, average, or bad. The probabilities for these three possibilities are 0.2 for a good market, 0.5 for an average market, and 0.3 for a bad market. The net profit or loss figures for the medium-sized and small plant for the various market conditions are given in the following table. Building no plant at all yields no loss and gain.

Alternative	Good market (k)	Average market (k)	Bad market (k)
Small plant	1,350,000	450,000	-720,000
Medium-sized plant	1,800,000	630,000	-1,080,000
No plant	0	0	0

The above information has been given to you as management accountant of Lafarge.

Required

1 Which of the three options would you recommend and why?

2 Basing on the minimax regret criterion and the minimum Expected Opportunity loss criterion, which would you recommend?

Answer rating: 100% (QA)

Small plant mediumsized plant and no plant are the three decision alternatives and good market average market and bad market are the three states of n... View the full answer