MGT613 Assignment No.1 Solution

Mr. A is the Operations Manager of ABC Company. He has been given the responsibility to make the decision for constructing a restaurant. He has three available alternative points to construct it out. First alternative is to construct on road S, second is to construct on road M, and third is to construct on road D. The data for expected payoff under three states of nature is available in the following table.

POSSIBLE FUTURE DEMANDS

Alternatives Low Moderate High

Road S Rs. 40 M Rs. 40 M Rs 50 M

Road M Rs. 55 M Rs.60 M Rs 75 M

Road D Rs. 30 M Rs 55 M Rs 85 M

Assuming the payoff under each state of nature what decision would be appropriate using each

of the following criteria.

a. Maximin

b. Maximax

c. Minimax regret

d. Laplace

Note: Calculation along with interpretation is required in order to attempt this question. In

the case students do not calculate and interpret, and just write the answers, will be given

low marks or no marks.

...........


MGT 613 Idea solution
:
Maximin Approach:
Road S = 40
Road M = 55 the best
Road D = 30

Maximax Apporach:
Road S = 50
Road M = 75 
Road D = 85 the best
Laplace approach:
Road S = 43.33
Road M = 63.33 the best
Road D = 56.67 


Maximax regret:
The best (doubted
Between Road M & D)

Alternatives Possible Future Demands
Low
Moderate
High
Road S
40-40 = 0
40-60 = -20 50-55 = -5
Road M
55-40 = 15
60-60 = 0
75-55 = 20
Road D
30-40 = -10 55-60 = -10 85-55 = 30


Calculations
Road S = 40+40+50=130/3=43.33
Road M = 55+60+75=190/3=63.33
Road D = 30+55+85=170/3=56.67