The Following Table Shows Cost Payoffs for Four Decision Variables

question 21

Essay

The following table shows cost payoffs for four decision variables and four states of nature.
a.Which decision variable would be selected using minimin criteria?
b.Remembering that the data represents cost, which decision variable would be selected using minimax?
c.Remembering that the data represents cost, which decision variable would be selected using minimax-regrets criteria.
d.Suppose the decision-maker assigns the probability for S₁ = 0.10; S₂ = 0.25; S₃ = 0.45; and S₄ = 0.20, which decision variable would be picked using the expected value criterion?

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Definitions:

Short Run

A period in which at least one input is fixed and cannot be changed by the firm.

Variable Costing

A cost accounting method that includes only variable costs—costs that change with production levels—in product cost calculations.

Manufacturing Margin

The difference between the cost of manufacturing goods and the sale price, indicating the profitability of production activities.

Unsold Units

Inventory items that have not been sold by the end of a selling period, affecting inventory carrying costs and cash flow.