Figure 12-3
The Lee Company must choose between two mutually exclusive alternatives. With alternative 1 an inferior product will be marketed that is best suited to low levels of demand whereas alternative 2 is a superior product that is best suited to high levels of demand. There are only two possible levels of demand - high and low and the probabilities of each event occurring is 0.5. The predicted profits for each alterative are:
-Refer to Figure 12-3. Using the data above relating to the Lee Company, what is the amount of regret that is used to determine the choice of alternatives under consideration?
A) £140,000
B) £210,000
C) £665,000
D) £315,000
E) It is not possible to apply the regret criterion to the data given.

Question

Figure 12-3
The Lee Company must choose between two mutually exclusive alternatives. With alternative 1 an inferior product will be marketed that is best suited to low levels of demand whereas alternative 2 is a superior product that is best suited to high levels of demand. There are only two possible levels of demand - high and low and the probabilities of each event occurring is 0.5. The predicted profits for each alterative are: 
-Refer to Figure 12-3. Using the data above relating to the Lee Company, what is the amount of regret that is used to determine the choice of alternatives under consideration?
A) £140,000 
B) £210,000 
C) £665,000 
D) £315,000 
E) It is not possible to apply the regret criterion to the data given.

Quizplus · Accepted Answer

The regret criterion is the difference between the payoff of the best alternative and the payoff of the alternative under consideration. In this case, the best alternative is "Do nothing" with a payoff of £665,000. The regret for "Expand" is £665,000 - £525,000 = £140,000.

Figure 12-3 The Lee Company Must Choose Between Two Mutually Exclusive Alternatives