Unformatted text preview: opportunities exceeded the firms capacity. The contractor must now make a decision on capacity for next year. Estimated profits (in $ thousands) under each of the two possible states of nature are as shown in the table below. NEXT YEARS DEMAND Alternative Low High Do nothing Expand Subcontract $40* 20 40 $60 80 70 * Profit in $ thousands. Which alternative should be selected if the decision criterion is: a. Maximax? b. Maximin? c. Minimax regret? Suppose after a certain amount of discussion, the contractor is able to subjectively assess the probabilities of low and high demand: P(low) = .3 and P(high) = .7. d. Determine the expected profit of each alternative. Which alternative is best? e. Compute the expected value of perfect information. How could the contractor use this knowledge? Fall 2010 Page 1...
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This note was uploaded on 02/13/2011 for the course ADM 2302 taught by Professor El during the Fall '05 term at University of Ottawa.
- Fall '05