Sodaco is considering producing a new product: Chocovan soda. Sodaco estimates that the annual demand for Chocovan,
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Sodaco is considering producing a new product: Chocovan soda. Sodaco estimates that the annual demand for Chocovan, D(in thousands of cases), has the following mass function: P(D=30)=.30, P(D=50)=.40, P(D=80)=.30. Each case of Chocovan sells for $5 and incurs a variable cost of $3. It cost $800,000 to build a plant to produce Chocovan. Assume that if $1 is received every year (forever), this is equivalent to receiving $10 at the present time. Considering the reward for each action and state of the world to be in terms of net present value, use each decision criterion (maximin, maximax, minimax regret, and expected value) to determine whether Sodaco should build the plant.
- Construct a payoff matrix for this problem
- Determine what decision the customer should make according to the Maximax decision rule.
- What decision should be made according to the Maximin decision rule?
- What decision should be made according to the expected value decision rule?
- What decision should be made according to the Minimax regret decision rule?
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