Kallie Inc. ,a small parts manufacturer,has just engineered a new product for the automotive industry.In order to produce the part the company can expand existing facilities,acquire a competitor,or subcontract production.The company believes the product will either experience high market demand or low market demand.The following payoff table describes the company's decision situation. The best decision for Kallie Inc.using the maximax decision criterion is to
A)expand facilities.
B)acquire competitor.
C)subcontract production.
D)select high demand.

Question

Kallie Inc. ,a small parts manufacturer,has just engineered a new product for the automotive industry.In order to produce the part the company can expand existing facilities,acquire a competitor,or subcontract production.The company believes the product will either experience high market demand or low market demand.The following payoff table describes the company's decision situation.  The best decision for Kallie Inc.using the maximax decision criterion is to
A)expand facilities. 
B)acquire competitor. 
C)subcontract production. 
D)select high demand.

Quizplus · Accepted Answer

According to the maximax decision criterion, the company should choose the option that will give the maximum possible payoff if the most favorable market condition occurs (i.e., high market demand). In this case, expanding facilities provides the highest possible payoff of $300,000 if high market demand occurs. Therefore, the best decision for Kallie Inc. using the maximax decision criterion is to expand existing facilities.