Question

A manufacturer of designer jeans must decide whether to build a large factory or a small factory in a specific location. The profit per pair of jeans manufactured is estimated as $10. A small factory will incur an annual cost of $200,000, with a production capacity of 50,000 pairs of jeans per year. A large factory will incur an annual cost of $400,000, with a production capacity of 100,000 pairs of jeans per year. Four levels of manufacturing demand are considered likely: 10,000, 20,000, 50,000, and 100,000 pairs of jeans per year. a. Determine the payoffs for the possible levels of production for a small factory. b. Determine the payoffs for the possible levels of production for a large factory. c. Based on the results of (a) and (b), construct a payoff table, indicating the events and alternative courses of action. Construct a decision tree. d. Construct an opportunity loss table. e. Use the Optimistic (maximax) to choose the best choice. f. Use the Pessimistic (maximin) to choose the best choice. g. Use the Criterion of realism (Hurwicz) to choose the best choice. (α=0.50) h. Use the Equally likely (Laplace) to choose the best choice. i. Use the Minimax regret to choose the best choice. j. Use the expected monetary value to make a choice. (Probability for the four-level demand are: 10000 = 0.30, 20000 = 0.35, 50000 = 0.20, 100000 = 0.15

Answer 1