Question1. List all the steps involved in decision making process.
Question2. The manager of Bus Company which operates between Rose-Hill and Port-Louis is debating whether to add one or two early morning bus to the company’s current schedule. The company management has evaluate that 100 people must use this route each day for the company to break even. Management feels that there is a 20% chance that fewer than 50 people will use the route and 50% chance that 100 people or more will use the route. The following payoff values (in rupees) were developed over a one-month period and summarized in Table 1
i) Determine management’s optimal decision using the following criterion:
a) Maximax criterion
b) Maximin criterion.
c) As the manager, you are a realist and believe that the correct decision technique to determine the best alternative is to use a coefficient of realism of 0.75, calculate your criterion of realism.
ii) Is “minimax regret” an optimistic or pessimistic approach? Explain.
iii) Determine the optimal decision if management was to use expected monetary value criterion?
iv) Evaluate the expected opportunity loss for each decision, and hence determine management’s optimal decision.
v) The bus company considers hiring a private consulting firm to conduct a study to acquire a better estimate of the demand for this early morning route. Determine the amount that the bus company should be willing to pay for this study. Do you think it would be worth trying to obtain additional information concerning which scenario is likely to happen?