Use the following data to answer questions 88-100. $$\begin{array}{l}
\quad \quad \quad \quad \quad \quad \quad \quad \text { Expected Demand for Weston Gadgets, Inc. }\
\begin{array} { | l | l | l | l | }
\hline \text { Decision Alternative } & \text { Low 35\% } & \text { Medium 30\% } & \text { High 35\% } \
\hline \text { Outsource } & \$ 16.00 \text { million } & \$ 28.00 \text { million } & \$ 66.00 \text { million } \
\hline \text { Build capacity } & \$ 4.00 \text { million } & \$ 32.00 \text { million } & \$ 26.00 \text { million } \
\hline \text { Do nothing } & \$ 9.00 \text { million } & \$ 18.00 \text { million } & \$ 66.00 \text { million } \
\hline
\end{array}
\end{array}$$
-Refer to the data on Expected Demand for Weston Gadgets,Inc.Based on the Hurwicz criterion,which of the following options would you choose if you used the coefficient of realism of 0.6?
A)Outsource
B)Build capacity
C)Do nothing
D)either Outsource or Do nothing

Question

Use the following data to answer questions 88-100. $$\begin{array}{l}
 \quad \quad \quad \quad \quad \quad \quad \quad \text { Expected Demand for Weston Gadgets, Inc. }\
\begin{array} { | l | l | l | l | } 
\hline \text { Decision Alternative } & \text { Low 35\% } & \text { Medium 30\% } & \text { High 35\% } \
\hline \text { Outsource } & \$ 16.00 \text { million } & \$ 28.00 \text { million } & \$ 66.00 \text { million } \
\hline \text { Build capacity } & \$ 4.00 \text { million } & \$ 32.00 \text { million } & \$ 26.00 \text { million } \
\hline \text { Do nothing } & \$ 9.00 \text { million } & \$ 18.00 \text { million } & \$ 66.00 \text { million } \
\hline
\end{array}
\end{array}$$
-Refer to the data on Expected Demand for Weston Gadgets,Inc.Based on the Hurwicz criterion,which of the following options would you choose if you used the coefficient of realism of 0.6?
A)Outsource
B)Build capacity
C)Do nothing
D)either Outsource or Do nothing

Quizplus · Accepted Answer

The Hurwicz criterion involves choosing an option based on a weighted average of the best and worst outcomes, with the coefficient of realism (α) indicating the weight given to the best outcome. For each decision alternative, calculate the weighted outcome as follows: $$ \text{Weighted outcome} = \alpha \times \text{Best outcome} + (1 - \alpha) \times \text{Worst outcome} $$ For α = 0.6, the calculations are: - Outsource: $0.6 \times 66 + 0.4 \times 16 = 46.0$ million - Build capacity: $0.6 \times 32 + 0.4 \times 4 = 20.8$ million - Do nothing: $0.6 \times 66 + 0.4 \times 9 = 43.4$ million Outsource has the highest weighted outcome, making it the preferred choice.

Use the Following Data to Answer Questions 88-100 -Refer to the Data on Expected Demand for Weston Gadgets,Inc