MGT 397, Chapter 12 Assignment

An operations manager has compiled the information below for four manufacturing alternatives (A, B, C,and D) that vary by production technology and the capacity of the machinery. All choices enable the same level of total production and have the same lifetime. The three states of nature represent three levels of consumer demand for the firm's products. Values in the table are net present values of future profits in millions of dollars. Show your workings in a table format to get credit for your answers.

High Medium Low

Demand Demand Demand

Alternative A 90 72 86

Alternative B 70 34 95

Alternative C 41 88 100

Alternative D 85 69 55

a. Which alternative is best according to maximax criterion?

b. Which alternative is best according to maximin criterion?

c. If the states of nature were equally likely, what is the expected value of each alternative and which alternative should be chosen?

d. Construct a regret table, and determine which alternative is best according to minimax regret criterion?

e. If further study revealed that the probability of high demand is 0.5, the probability of medium demand is 0.3, and the probability of low demand is 0.2, which alternative is best?

f. If the coefficient of optimism () is 0.6, which alternative is best according to Hurwicz criterion?

g. What is the expected value of profit with perfect information?

h. What is the value of perfect information?

Show all your workings for each question to get credit for your answers. Use Tables as shown in the examples shown in the posted PowerPoint slides.