Using the Payoff table below, choose the optimum Production Process by calculating the Maximin
Using the Payoff table below, choose the optimum Production Process by calculating the Maximin..
(i) Using the maximin criterion( choosing the best of the worst level of demands)
From the table process Y with $89,000 is best among the three in the low demand.so the answer is process Y.
(ii)By using criterion of realism,
Given: coefficiet of realism=60%=0.6
1-(coefficiet of realism)=0.4
now calculating for each process ,( coefficient of realism)*(maximum demand) + (1-coefficient of realism)*(minimum demand)
for process X= 0.6*180,000 + 0.4*86,000=$142,400
for process Y= 0.6*170,000 + 0.4*89,000=$137,600
for process Z= 0.6*210,000 + 0.4*80,000=$158,000
So the process Z is chosen.
(iii) Minimax regret criterion,
|production process||low demand||Moderate demand||High demand|
So now we have to calculate the averages for all the three processes,
So choosing the minimum that is process Z