Name: FEGARIDO, JYRA G.

Course & Year: BSMA – 4A

Subject: Management Science 08 Task Performance 01

Quiz: ANSWER

A. Determine the bet decision by using the following decision criteria:

a. Maximax
 Maintain Status quo = 1,300,000

b. Maximin
 Expand = 500,000

c. Minimax Regret
Good Foreign Competitive Conditions
1,300,000 - 800,000 = 500,000
1,300,000 – 1,300,000 = 0
1,300,000 – 320,000 = 980,000
Poor Foreign Competitive Conditions
500,000 – 500,000 = 0
500,000 – (-150,00) = 650,000
500,000 – 320,000 = 180,00

State of Nature
Good Foreign Poor Foreign
Decision
Competitive Conditions Competitive Conditions
Expand 500,000 0
Maintain Status quo 0 650,000
Sell now 980,000 180,000

d. Hurwicz (a=0.3)

Good Foreign Poor Foreign

Decision Total
Competitive Conditions Competitive Conditions
Expand 800,000 (0.3)= 240,000 500,000 (0.7) = 350,000 590,000
Maintain Status quo 1,300,000 (0.3) = 390,000 -150,000 (0.7) = -105,000 285,000
Sell now 320,000 (0.3) = 96,000 320,000 (0.7) = 224,000 320,000

e. Equal Likelihood

Good Foreign Poor Foreign

Decision Total
Competitive Conditions Competitive Conditions
Expand 800,000 (0.5)= 400,000 500,000 (0.5) = 250,000 650,000
Maintain Status quo 1,300,000 (0.5) = 650,000 -150,000 (0.5) = -75,000 575,000
Sell now 320,000 (0.5) = 160,000 320,000 (0.5) = 160,000 320,000
 B. Assume that it is now possible to estimate a probability of 0.70 that good foreign competitive
conditions will exist and a probability of 0.30 that poor conditions will exist. Determine the best
decision by using expected value and expected opportunity loss.
Expected Opportunity Loss

Good Foreign Poor Foreign

Decision Total
Competitive Conditions Competitive Conditions
Expand 800,000 (0.70)= 560,000 500,000 (0.30) = 150,000 710,000
Maintain Status quo 1,300,000 (0.70) = 650,000 -150,000 (0.30) = -45,000 865,000
Sell now 320,000 (0.70) = 160,000 320,000 (0.30) = 96,000 320,000

* As the minimax regret criterion, the best results from minimizing the regret, or, in this case, minimizing the
expected regret or oppurtunity loss. Because 320,000 is the minimum expected regret, the decision is to sell
now. *

C. Expected Value with Perfect Information

Expected Value
EV (expand) = 800,000 (0.70) + 500,000 (0.30) = 710,000
EV (maintain status quo) = 1,300,000 (0.70) +(-150,000) (0.30) = 865,000
EV (sell now) = 320,000 (0.70) + 320,000 (0.30) = 320,000

Expected Value of the decision, given perfect information

1,300,000 (0.70) + 500,000 (0.30)
= 910,000 + 150,000
= 1,060,000

EVPI = Expected Value - Expected Value of the decision, given perfect information
EVPI = 1,060,000 – 865,000

EVPI = 195,000
 D. DECISION TREE
Good (0.70)
800,000

Expand
Poor (0.30)
500,000

Good (0.70) 1,300,000

Decision Maintain status quo
Poor (0.30) -150,000

320,000
Good (0.70)

Sell now
Poor (0.30)

320,000