Thompson Lumber Company wants to decide if they should expand their current product line by manufacturing a new product, backyard storage sheds.
They decide their alternatives are to (I) construct a large new plant to manufacture the storage sheds, (2) a small plant, or (3) no plant at all.
To identify the possible outcomes, management created the payoff table, indicating profits, below.
|
|
Staler of Nature
|
|
Favorable Market
|
Unfavorable Market
|
|
Alternative
|
($)
|
($)
|
|
Large Plant
|
200,000
|
-180,000
|
|
Small Plant
|
100,000
|
20,000
|
|
Do nothing
|
0
|
0
|
a. What decision would you make if you were optimistic and applied the maximax criterion? Support your answer.
b. What decision would you make if you were pessimistic and applied the maximin criterion?
c. What decision would you make if you were to apply the Laplace decision making criteria?