The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_i,i = 1,2,3)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium,and low demand respectively.The payoff values are in thousands of dollars. $\begin{array} { l c c c } & { \text { States of nature } } \\& \mathrm { s } _ { 1 } & \mathrm {~s} _ { 2 } & \mathrm {~s} _ { 3 } \\\text { Alternative (strategy) 1 } & 10 & 80 & 70 \\\text { Alternative (strategy) 2 } & 60 & 120 & 50\end{array}$
The best alternative (course of action)for the EKA manufacturing company using the maximax criterion is alternative 1.

Question

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_i,i = 1,2,3)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium,and low demand respectively.The payoff values are in thousands of dollars.

\begin{array} { l c c c } & { \text { States of nature } } \\& \mathrm { s } _ { 1 } & \mathrm {~s} _ { 2 } & \mathrm {~s} _ { 3 } \\\text { Alternative (strategy) 1 } & 10 & 80 & 70 \\\text { Alternative (strategy) 2 } & 60 & 120 & 50\end{array}

The best alternative (course of action)for the EKA manufacturing company using the maximax criterion is alternative 1.

Quizplus · Accepted Answer

The maximax criterion involves selecting the alternative with the highest possible payoff. For alternative 1, the highest payoff is 80, and for alternative 2, it is 120. Therefore, according to the maximax criterion, alternative 2 is the best choice because it has the highest maximum payoff.

The Alternatives 1 and 2 in the Following Payoff Table