In solving the given problem ,

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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