Assignment on Setting Up a Gasoline Station

1. Even though independent gasoline stations have been having a difficult time, Susan Solomon has been thinking about starting her own independent gas station. Susan’s problem is to decide how large her station should be. The annual returns will depend on both the size of the station and a number of marketing factors related to oil industry and demand for gasoline. After careful analysis, Susan developed the following table:

Sizes of Gasoline Station
Good Market ($)
Fair Market ($)
Poor Market ($)
Small
$70,000
$30,000
-$30,000
Medium
$110,000
$50,000
-$40,000
Large
$170,000
$70,000
-$50,000

1. Develop a decision table for this decision.

Size of Gasoline Station Good Market ($) Fair Market ($) Poor Market ($)
Small $70,000.00 $30,000.00 $(30,000.00)
Medium $110,000.00 $50,000.00 $(40,000.00)
Large $170,000.00 $70,000.00 $(50,000.00)

2. What is the Maximax decision? Large
Sizes
Good Market
Fair Market
Poor Market
Maximum
Small $ 70,000 $ 30,000 $ (30,000) $ 70,000
Medium
$ 110,000 $ 50,000 $ (40,000) $ 110,000
Large
$ 170,000 $ 70,000 $ (50,000) $ 170,000

3. What is the Maximin decision? Small
Sizes
Good Market
Fair Market
Poor Market
Minimum
Small $ 70,000 $ 30,000 $ (30,000) $ (30,000)
Medium
$ 110,000 $ 50,000 $ (40,000) $ (40,000)
Large
$ 170,000 $ 70,000 $ (50,000) $ (50,000)

4. What is the criterion of realism decision? Large

5. Develop an Opportunity Loss Table: Maximum payoff - Actual payoff= Opportunity Loss
Opportunity Loss Table
Size
Good

References: Evans J., Hanna M., Render B. (2012). Business Statistics with Quantitative Analysis. Pearson Education, Inc.