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8)Local real estate investor in Orlando is considering three alternative investments: a motel, a restaurant, or a thearter.

8)Local real estate investor in Orlando is considering three alternative investments: a motel, a restaurant, or a thearter. Profits from the motel or restaurant will be affected by the availability of gasoline and the number of tourists;profits from the theater will be relativelt stable under any conditions. The following payoff table shows the profit or loss that could result from each investment :


Investment Shortage Stable Supply Surplus
Motel $-8,000 $15,000 $20,000
Restaurant $2,000 $8,000 $6,000
Thearter $6,000 $6,000 $5,000

Determine the best investment using the following decision criteria.
a. Maximax
b. Maximin
c. Minimax regret
d. Hurwicz(a=.4)
e. Equal likelihood

18) The Miramar Company is going to introduce one of three new products: a widget, a hummer, or a nimnot. The market conditions(favorable, stable, or unfavorable) will determine the profit or loss the company realizes, as shown in the following payoff table:

Market Conditions

Favorable Stable Unfavorable

Product .2 .7 .1
Widget $120,000 $70,000 $-30,000
Hummer 60,000 40,000 20,000
Nimnot 35,000 $30,000 30,000

a.Compute the expected value for each decision and select the best one.
b.Develop the opportunity loss table and compute the expected opportunity loss for each product.
c.Determine how much the firm would be willing to pay to a market research firm to gain better information about future market conditions.

12)Micromp is a U.S based manufacturer of personal computers. It is planning to build a new manufacturing and distribution facility in either South Korea, China, Taiwan, the Philippines, or Mexico. It will take approximately 5 years to build the necessary infastucture(roads, etc), construct the new facility, and put it into operation. The eventual cost of the facility will differ between countries and will even vary within countries depending on the financial , labour, and political climate including monetary exchange rates. The company has estimated the facility cost(in $1,000,000s) in each country under three different future economic and political climates, as follows:

Economic/Political Climate

Country Decline Same Improve
South Korea 21.7 19.1 15.2
China 19.0 18.5 17.6
Taiwan 19.2 17.1 14.9
Philippines 22.5 16.8 13.8
Mexico 25.0 21.2 12.5

Determine the best decision, using the following decision criteria.

a. Minimin
b. Minimax
c. Hurwitcz(a=.4)
d. Equal Likelihhod

Top Answer

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Theater Shortage Supply Stable Supply
$6000 Surplus Supply
$5000 a. Maximax
Step 1 - Take Maximum of each row
Step 2 -...

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