Even though independent gasoline stations have been having a difficult time, Susan Solomon has been thinking about starting her own independent gasoline station. Susan%u2019s problem is to decide how large her station should be. The annual returns will depend on both the size of her station and a number of marketing factors related to the oil industry and demand for gasoline. After a careful analysis, Susan developed the following table:
Size of market Profit in Good Market Profit in Fair Market Profit in Poor Market
Small 50,000 20,000 -10,000
Medium 80,000 30,000 -20,000
Large 100,000 30,000 -40,000
Very Large 300,000 25,000 -160,000
For example, if Susan constructs a small station and the market is good, she will realize a profit of $50,000.
a) What is the maximax decision?
b) What is the maximin decision?
c) What is the equally likely decision?
d) What is the Hurwicz (criterion of realism) decision with a = 0.8?
e) What is the minimax regret decision?