The national sales manager for "I colored this" (ICT) T-shirts, provides all salespersons with the payoff table shown below, giving the estimated profit when a retailer purchases from 1 to 4 dozen T-shirts. The probability of demand for each state of nature is also shown. What would be the best decision if the maximin strategy is used?
A) 1
B) 2
C) 3
D) 4

Question

The national sales manager for "I colored this" (ICT) T-shirts, provides all salespersons with the payoff table shown below, giving the estimated profit when a retailer purchases from 1 to 4 dozen T-shirts. The probability of demand for each state of nature is also shown.  What would be the best decision if the maximin strategy is used?
A) 1 
B) 2 
C) 3 
D) 4

Quizplus · Accepted Answer

To use the maximin strategy, we need to determine the minimum profit for each decision (purchase quantity) and choose the one with the highest minimum profit.

For Decision 1 (purchase 1 dozen), the minimum profit is $80, which is the lowest profit in the first column. 
For Decision 2 (purchase 2 dozen), the minimum profit is $100, which is the lowest profit in the second column. 
For Decision 3 (purchase 3 dozen), the minimum profit is $70, which is the lowest profit in the third column. 
For Decision 4 (purchase 4 dozen), the minimum profit is $50, which is the lowest profit in the fourth column.

Therefore, the best decision using the maximin strategy is to purchase 1 dozen T-shirts, as it has the highest minimum profit of $80.

The National Sales Manager for "I Colored This" (ICT) T-Shirts