Salma Electronics Company specialize in manufacturing electronic components. It is considering building a new facility either large, medium or small, to produce the components. The following table shows the payoffs (RM in thousands) for a proposed facility under three market conditions (strong, fair and poor markets).

Table 1 Conditional payoffs and probabilities of Salma Electronics Company

Alternative	State of Nature, Payoff (RM’000)
Strong Market	Fair Market		Poor Market
Large Facility	85	60		25
Medium Facility	60	50		45
Small Facility	40	40		35
Probability	0.3	0.6		0.1

1. What decision would maximize the expected payoff?

2. Construct an opportunity loss table and determine the best decision by minimizing expected opportunity loss.

3. Determine the expected value with perfect information (EVWPI) and the expected value of perfect information (EVPI).

SCENARIO 2

The manager of a sports shop intends to purchase some basketballs. The demands for the basketballs are 20,30 or 40. He can either order 20,30 or 40 basketballs at RM40 each. He sells basketball for RM60. However, if these are unsold basketballs at the end of the year, the manager will return the basketballs to the supplier at RM30 each.

Construct a payoff table. Determine the number of basketballs that the manager should order according to

1. Maximax Criterion.
2. Maximin Criterion.
3. Equally likely Criterion.

Answer rating: 100% (QA)

Lets address each of your questions one by one 1 To maximize the expected payoff we need to calculate the expected payoffs for each facility size and choose the one with the highest expected value Exp... View the full answer