Next Year's Demand Alternative| Low| High |
Do nothing| $50*| $60*|
Expand| 20| 80|
Subcontract| 40| 70|
*Profit in $ thousands.
a. Maximax- Determine the best possible payoff, and choose the alternative with that payoff. The best payoff. Do Nothing – 60,000|
Expand – 80,000|
Subcontract – 70,000|
Expanding would be the most beneficial.
b. Maximin- - Determine the worst possible payoff of each alternative, and choose the alternative that has the “best worst”. Do Nothing – 50,000|
Expand – 20,000|
Subcontract – 40,000|
With this option I would recommend to do nothing.
a. Laplace- choosing the best average.
Do Nothing – 55,000|
Expand – 50,000|
I would choose Do nothing or subcontract they are equally good decisions.
b. Minimax regret
Determines the worst regret for each alternative.
Alternative Low High|
Do Nothing $0 $20,000|
Expand $30,000 0|
Subcontract $10,000 $10,000|
Based on all the scenarios I would suggest that subcontracting especially in the state that the economy is in which a state of uncertainty I would suggest subcontracting it looks to be the one with least risk.
Stevenson, W.J. (2011). Operations management (11th ed). New York, NY: McGraw...