In solving the given problem ,you may refer to the following payoff table:
|
|
New bridge built |
No new bridge |
Alternative location |
A |
1 |
14 |
for new warehouse |
B |
2 |
10 |
|
C |
4 |
6 |
1. Assume the payoffs represent profits. Determine the alternative that would be chosen under each of these decision criteria:
A. Maximin
B. Maximax
C. Laplace
2. Using the information in the payoff table, develop a table of regrets, and then:
A. Determine the alternative that would be chosen under minimax regret.
B. Determine the expected value of perfect information using the regret table, assuming that the probability of a new bridge being built is 0.60.
3. Using the probabilities of 0.60 for a new bridge and 0.40 for no new bridge, compute the expected value for each alternative in the payoff table , and identify the alternative that would be selected under the expected-value approach.
4. Draw a Decision Tree on this Alternative Location for New Warehouse Problem indicating graphically the sequences of decision alternatives and states of nature that provide the six possible payoffs.
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