Trey Leeman,Operations Manager at National Consumers,Inc.(NCI),is evaluating alternatives for increasing capacity at NCI's Fountain Hill plant.He has identified four alternatives,and has constructed the following payoff table which shows payoffs (in $1,000,000's)for the three possible levels of market demand. If Trey uses the maximax criterion,the appropriate alternative would be: _____________.

Question

Trey Leeman,Operations Manager at National Consumers,Inc.(NCI),is evaluating alternatives for increasing capacity at NCI's Fountain Hill plant.He has identified four alternatives,and has constructed the following payoff table which shows payoffs (in $1,000,000's)for the three possible levels of market demand.  If Trey uses the maximax criterion,the appropriate alternative would be: _____________.

Quizplus · Accepted Answer

The maximax criterion recommends selecting the alternative with the highest possible payoff. Based on the payoff table, the highest possible payoff for each alternative is:

- Lease New Equipment: $6 million
- Purchase New Equipment: $11 million
- Add Third Shift: $5 million
- Do Nothing: $0 million

Therefore, the appropriate alternative according to the maximax criterion is to purchase new equipment (Alternative B) as it has the highest payoff of $11 million in the best-case scenario.