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)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. $\begin{array}{lccc} &&\underline{{\text { States of nature }}} \\& s_{1} & s_{2} & s_{3} \\\text { Alternative (strategy) } 1 & 110 & 80 & 70 \\\text { Alternative (strategy) } 2 & 60 & 120 & 50\end{array}$

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

Question

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)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}{lccc} &&\underline{{\text { States of nature }}} \\& s_{1} & s_{2} & s_{3} \\\text { Alternative (strategy) } 1 & 110 & 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 maximum possible payoff (best-case scenario). For alternative 1, the maximum payoffs are 110, 80, and 70 for states of nature s1, s2, and s3, respectively. For alternative 2, the maximum payoffs are 60, 120, and 50 for states of nature s1, s2, and s3, respectively. Therefore, according to the maximax criterion, the best alternative would be alternative 2, which has a higher maximum payoff for two out of the three states of nature.

Alternatives 1 and 2 in the Following Payoff Table Represent