EMIS 7300
Team Assignment 7 Solutions
3-19 Todays Electronics specializes in manufacturing modern electronic components. It
also builds the equipment that produces the components. Phyllis Weinberger, who is
responsible for advising the president of Todays Electronics on manufacturing
equipment, has developed the following table concerning a proposed facility:
Large Facility
Medium-size Facility
Small Facility
No Facility
a)
Profits$
Fair Market
110,000
129,000
100,000
0
Strong Market
550,000
300,000
200,000
0
Poor Market
-310,000
-100,000
- 32,000
0
Regret for Strong Market:
Large Facility
Medium-size Facility
Small Facility
No Facility
550,000 550,000 = 0
550,000 300,000 = 250,000
550,000 200,000 = 350,000
550,000 0 = 550,000
Regret for Fair Market:
Large Facility
Medium-size Facility
Small Facility
No Facility
129,000 110,000 = 19,000
129,000 129,000 = 0
129,000 100,000 = 29,000
129,000 0 = 129,000
Regret for Poor Market:
Large Facility
Medium-size Facility
Small Facility
No Facility
0 (-310,000) = 310,0000
0 (-100,000) = 100,000
0 (-32,000) = 32,000
00=0
Opportunity Loss Table
Large Facility
Medium-size
Facility
Small Facility
No Facility
b)
Strong Market
0
250,000
Regret Profits$
Fair Market
19,000
0
350,000
550,000
29,000
129,000
Poor Market
310,000
100,000
32,000
0
Row Max
310,000
250,000
350,000
550,000
The minimax regret decision is to build a medium-size facility (250,000).
EMIS 7300
Team Assignment 7 Solutions
3-21 Even though independent gasoline stations have been having a difficult time, Susan
Solomon has been thinking about starting her own independent gasoline station. Susans
problem is to decide how large her station should be. The annual returns will depend on
both the size of her station and a number of marketing factors related to the oil industry
and demand for gasoline. After a careful analysis, Susan developed the following table:
Size of First
Station
Small
Medium
Large
Very Large
Good Market(s)
Fair Market(s)
Poor Market(s)
50,000
80,000
100,000
300,000
20,000
30,000
30,000
25,000
-10,000
-20,000
-40,000
-160,000
a)
Decision Table *
Decision Criteria
Maximax
Maximin
Equaliy Likely
Hurwicz (=0.8)
Minimax Regret
Decision Alternatives
Very Large Station
Small Station
Very Large Station
Very Large Station
Very Large Station
Profit
300,000
-10,000
55,000
208,000
150,000
* This decision table was filled in with the analysis below.
b)
Size of First
Station
Small
Medium
Large
Very Large
Maximax Criterion
Good
Market(s)
50,000
80,000
100,000
300,000
Fair Market(s)
Poor Market(s)
Row Max
20,000
30,000
30,000
25,000
-10,000
-20,000
-40,000
-160,000
50,000
80,000
100,000
300,000
Since 300,000 is the max, the decision is to construct a very large station.
c)
Size of First
Station
Maximin Criteria
Good
Market(s)
Fair Market(s)
Poor Market(s)
Row Min
EMIS 7300
Small
Medium
Large
Very Large
Team Assignment 7 Solutions
50,000
80,000
100,000
300,000
20,000
30,000
30,000
25,000
-10,000
-20,000
-40,000
-160,000
-10,000
-20,000
-40,000
-160,000
Since 10,000 is the max, the decision is to construct a small station.
d)
Size of First
Station
Small
Medium
Large
Very Large
Equally-Likely Criterion
Good
Market(s)
50,000
80,000
100,000
300,000
Fair Market(s)
Poor Market(s)
Average
20,000
30,000
30,000
25,000
-10,000
-20,000
-40,000
-160,000
20,000
30,000
30,000
55,000
Since 55,000 is the max, the decision is to construct a very large station.
Hurwicz =0.8
e)
Size of
First
Station
Small
Medium
Large
Good
Market(s)
Fair
Market(s)
Poor
Market(s)
Row
Max
Row
Min
Hurwicz
50,000
80,000
100,000
20,000
30,000
30,000
-10,000
-20,000
-40,000
-10,000
-20,000
-40,000
38,000
60,000
72,000
Very
Large
300,000
25,000
-160,000
50,000
80,000
100,00
0
300,00
0
-160,000
208,000
Since 208,000 is the max, the decision is to construct a very large station.
f)
Regret for Good Market(s):
Small
300,000 50,000 = 250,000
Medium
300,000 80,000 = 220,000
Large
300,000 100,000 = 200,000
Very Large 300,000 300,000 = 0
Regret for Fair Market(s):
Small
30,000 20,000 = 10,000
Medium
30,000 30,000 = 0
Large
30,000 30,000 = 0
Very Large 30,000 25,000 = 5,000
Regret for Poor Market(s):
Small
-10,000 (-10,000) = 0
3
EMIS 7300
Team Assignment 7 Solutions
Medium
Large
Very Large
-10,000 (-20,000) = 10,000
-10,000 (-40,000) = 30,000
-10,000 (-160,000) = 150,000
Opportunity loss table
Size of First
Station
Small
Medium
Large
Very Large
Good
Market(s)
250,000
220,000
200,000
0
Fair Market(s)
Poor Market(s)
Row Max
10,000
0
0
5,000
0
10,000
30,000
150,000
250,000
220,000
200,000
150,000
g) Since 150,000 is the min, the decision based on minimax regret is to construct the
very large station.
