An Operations Manager's Staff Has Compiled the Information Below for Four

question 82

Essay

An operations manager's staff has compiled the information below for four manufacturing alternatives (A, B, C, and D) that vary by production technology and the capacity of the machinery. All choices enable the same level of total production and have the same lifetime. The four states of nature represent four levels of consumer acceptance of the firm's products. Values in the table are net present value of future profits in millions of dollars.
$$\begin{array} { | c | c | c | c | c | } \hline & { \text { States of Nature } } \\\hline & 1 & 2 & 3 & 4 \\\hline \text { Alternative A } & 50 & 55 & 60 & 65 \\\hline \text { Alternative B } & 30 & 50 & 80 & 130 \\\hline \text { Alternative C } & 70 & 80 & 70 & 65 \\\hline \text { Alternative D } & - 100 & - 10 & 150 & 220 \\\hline\end{array}$$
a. Assuming a maximax strategy, which alternative would be chosen?
b. If maximin were used, which would be chosen?
c. If the states of nature were equally likely, which alternative should be chosen?

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Definitions:

Identification

The psychological process in which an individual assimilates an aspect, property, or attribute of another and is transformed, wholly or partially, by the model the other provides.

Automatically Processed

Information processed without conscious awareness, often quickly and efficiently.

Retracing Steps

A method of attempting to remember or find something by thinking or going back over the path or actions taken.

Identification

A psychological process whereby an individual assimilates an aspect, property, or attribute of another and is transformed, wholly or partially, by the model the other provides.