A small parts manufacturer has just engineered a new product for the automotive industry.

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 company believes the product will either experience high market demand or low market demand, with probabilities of 0.60 and 0.40, respectively.

The following payoff table describes the company’s decision situation (all numbers are in thousands). Note that some numbers are negative. 

………………………………………High Demand……..Low Demand

Expand Facilities……………………1600…………………..-1150

Acquire Competitor………………..950…………………..-425

Subcontract Production…………250…………………..30

What is the best decision based on optimistic approach?

Expand Facilities

Acquire Competitor

Subcontract Production

What is the best decision based on pessimistic approach?

Expand Facilities

Acquire Competitor

Subcontract Production

How much is the average payoff if the company expands facilities?

Your answer

How much is the average payoff if the company acquires competitor?

Your answer

How much is the average payoff if the company subcontracts production?

Your answer

What is the best decision based on equal likelihood approach?

Expand Facilities

Acquire Competitor

Subcontract Production

How much is the expected payoff if the company expands facilities?

Your answer

How much is the expected payoff if the company acquires competitor?

Your answer

How much is the expected payoff if the company subcontracts production?

Your answer

What is the best decision based on expected value approach?

Expand Facilities

Acquire Competitor

Subcontract Production

How much is the expected payoff if the company has full information about the demand?

Your answer

Calculate the expected value of perfect information?

Your answer

How much is the maximum regret of the company if they expand facilities?

Your answer

How much is the maximum regret of the company if they acquire competitor?

Your answer

How much is the maximum regret of the company if they subcontract production?

Your answer

What is the best decision based on minimax regret approach?

Expand Facilities

Acquire Competitor

Subcontract Production

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