(Show Solution)

Caselet # 1: ABC Construction Company is going to decide whether they are going to expand their business, build an additional facility, or subcontract a partner company. The research and development department forecasted the following payoff values which are summarized in the table below. The values are expressed as GAINS and alpha = 0.6. Come up with a decision using the different criteria under conditions of uncertainty: States of Nature High Moderate Low Failure Decision Alternatives Expand Build P500,000 P700,000 P250,000 P300,000 -P250,000 -P400,000 -P450,000 -P800,000 Subcontract P300,000 P150,000 -P10,000 -P100,000