Roger Davis wants to open an independent gasoline station. Roger must decide how large his station should be. The annual returns will depend upon both the size of his station and the demand for gasoline. After careful analysis, Roger developed the subsequent table.
Size of Station Good Market Fair Market Poor Market
$ (000) $ (000) $ (000) $ (000)
Small 50 20 -10
Medium 80 30 -20
Large 100 30 -40
Very Large 300 25 -160
a. Develop a decision table for this decision.
b. What is the Maximax decision?
c. What is the Maximin decision?
d. What is the Mini-max Regret decision?
e. Prepare a decision tree of this problem.
f. If the probabilities of the markets are good market, 30%; fair market, 50%; poor market, 20%, calculate the expected values and expected opportunities lost of each option, and make a recommendation.