Quantitative Analysis Section III: Decision Analysis

| August 30, 2017

Question
Section III: Decision Analysis (20 Points)

Unidyde is considering expansion of its Fort Myers plant to produce a new chemical compound. The company is evaluating three different expansion plans: Minor, moderate or major. They can, of course, also do nothing. Long term profitability depends on future demand growth for the chemical compound. The following payoff table gives the present worth of future profitability (in $1,000) estimated by Unidyde management. Please make the optimal decision based on each of the following criteria.SHOW WORK.

Expansion Plan

Demand Growth

High

Medium

Low

None

0

0

0

Minor

140

130

100

Moderate

155

240

-300

Major

200

125

-500

(5 Points) Maximax
Expansion

(Payoff)

Demand Growth

Decision Criterion

High

Medium

Low

None

0

0

0

Minor

140

130

100

Moderate

155

240

-300

Major

200

125

-500

Decision:

(5 Points) The Principle of Insufficient Reason
Expansion

(Payoff)

Demand Growth

Decision Criterion

High

Medium

Low

None

0

0

0

Minor

140

130

100

Moderate

155

240

-300

Major

200

125

-500

Decision:

(5 Points) Minimax Regret (First develop the regret table)
Expansion

(Regret)

Demand Growth

Decision Criterion

High

Medium

Low

None

Minor

Moderate

Major

Decision:

(5 Points) Expected Monetary Value
Expansion

(Payoff)

Demand Growth

Decision Criterion

High

Medium

Low

None

0

0

0

Minor

140

130

100

Moderate

155

240

-300

Major

200

125

-500

Probability

0.3

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