Questions

Question Set $1.$ Microsoft is considering different R$\backslash$&D paths for the upcoming year's release. The five strategies $($along with changing nothing$)$ under consideration are:

$-$ Decrease Depth: Decrease the width of the phones without changing other specs

$-$ Smaller Battery: Decrease battery capacity of phones by $7\backslash \%$

$-$ Mixed: Combine above two strategies

$-$ Larger Battery: Increase battery capacity of phones by $6\backslash \%$

$-$ No Change: Do not change anything, buyers seem content

The outcomes of the possible strategies $($in millions of dollars$)$ depend on how the competitors behave. Microsoft considers four different outcomes, which are not shared, but we will call them as scenarios $1,2,3$ and $4.$ Negative values indicate loss for Microsoft and positive values indicates possible profits.

For the following questions, you will use Excel to identify the best strategy according to various criteria. You only need to perform the necessary calculations to show which one is best. For example, the first question is for maximax. You need to set up formulas to find the maximum payoff for each strategy and to then find the highest value among them. However, once you have calculated that highest value, you can just type in the corresponding strategy without any further Excel calculations.

$1.$ What would be Microsoft's decision using the maximax criterion? $(3$pts$)$

$2.$ What would be Microsoft's decision using the maximin criterion? $(3$pts$)$

$3.$ What would be Microsoft's decision using the Laplace criterion? $(3$pts$)$

$4.$ What would be Microsoft's decision using the minimax regret criterion? It is most helpful to construct a regret table for this problem. $(6$pts$)$

Question Set $2.$ This question set uses the table of outcomes from Question Set $1$ for Microsoft's strategies. Assume that the probabilities for scenarios are:

$-\backslash ($ P$(\backslash )$ Scenario $1)\backslash (=0\mathrm{.}15\backslash )$

$-\backslash ($ P$(\backslash )$ Scenario $2)\backslash (=0\mathrm{.}25\backslash )$

$-\backslash ($ P$(\backslash )$ Scenario $3)\backslash (=0\mathrm{.}20\backslash )$

$-\backslash ($ P$(\backslash )$ Scenario $4\backslash ()=0\mathrm{.}40\backslash )$

$1.$ What decision will maximize Google's expected monetary value? $(9$pts$)$

$2.$ What is the expected value of perfect information? $\backslash ((6\backslash$mathrm$\{$pts$\})\backslash )$