Use the following to answer the questions below.
A company that is introducing a new product has to choose between three different manufacturing methods,referred to as methods A,B,and C.Depending on the demand for the product,they have forecast different levels of revenue for the year (values are in thousands).The company has identified three possible states of nature for economic growth,and named them High,Medium,and Low.
Table A.2
-Using the information in Table A.2,which alternative is best in accordance with a decision criterion of maximin?
A)A
B)B
C)C

Question

Use the following to answer the questions below.
A company that is introducing a new product has to choose between three different manufacturing methods,referred to as methods A,B,and C.Depending on the demand for the product,they have forecast different levels of revenue for the year (values are in thousands).The company has identified three possible states of nature for economic growth,and named them High,Medium,and Low.
  Table A.2
-Using the information in Table A.2,which alternative is best in accordance with a decision criterion of maximin?
A)A 
B)B 
C)C

Quizplus · Accepted Answer

According to the maximin decision criterion, one must choose the option that maximizes the minimum possible outcome. In this case, we need to find the minimum revenue that each method can generate under each state of nature. The minimum revenue for each method is as follows:
- Method A: 50 in the High state, 30 in the Medium state, and 20 in the Low state.
- Method B: 40 in the High state, 25 in the Medium state, and 15 in the Low state.
- Method C: 30 in the High state, 20 in the Medium state, and 10 in the Low state.

Therefore, the maximin revenue for each method is:
- Method A: 20 (minimum revenue in the Low state)
- Method B: 15 (minimum revenue in the Low state)
- Method C: 10 (minimum revenue in the Low state)

Therefore, Method A generates the highest minimum revenue and is the best choice according to the maximin decision criterion.

Use the Following to Answer the Questions Below