Question

Steve’s Mountain Bicycle Shop is considering three options for its facility next year. Steve can expand his current shop, move to a larger facility, or make no change. With a good market, the annual payoff would be $76,000 if he expands,
$90,000 if he moves, and $40,000 if he does nothing. With an average market, his payoffs will be $30,000, $41,000, and
$15,000, respectively. With a poor market, his payoff will be - $17,000, - $28,000, and $4,000, respectively.

(a) Which option should Steve choose if he uses the maximax criterion?
(b) Which option should Steve choose if he uses the maximin criterion?
(c) Which option should Steve choose if he uses the equally likely criterion?
(d) Which option should Steve choose if he uses the criterion of realism with = 0.4?
(e) Which option should Steve choose if he uses the minimax regret criterion?

Answer 1

Answer:

A.) 90,000$

B.) 4,000$

C.) 29,500$

D.)60,000$

E.)21,000$