A fitness center is considering an expansion. Three proposals are being considered: add new pool, add new equipment or add child center. The profits for three different customer responses for each proposal are shown in the table below:
Customer Response
High Moderate Low
Add New Pool 100,000 60,000 50,000
Add New Equipment 120,000 80,000 30,000
Add Child Center 120,000 70,000 60,000
For this problem:
(a) What is the optimal decision when using the maximax criterion? What is the payoff for it?
(b) What is the optimal decision when using the maximin criterion? What is the payoff for it?
(c) What is the optimal decision when using the minimax regret criterion? What is the payoff for it?
(d) What is the optimal decision using the Hurwicz’s criterion if α = 0.4? What is the payoff for it?