Question 1

50 Points
Question 1:
The Brampton Honda Dealership is considering expanding its showroom facility. The
following table shows the 3 alternatives, the states of nature and their payoffs:

Small Facility Medium Facility Large Facility

Low demand $30,000 $25,000 -$20,000
Medium demand $30,000 $50,000 $20,000
High demand $27,000 $48,000 $65,000

What would your decision be if the following rules are applied? (show your calculation)
1. Maximax (12.5 marks) – $65,000
The goal of this rule is to achieve the greatest feasible result. For every natural
state, we choose the option with the largest potential reward. Large Facility is
chosen using the Maximax criterion since it offers the maximum reward across all
situations.
2. Maximin (12.5 marks) - $ 30,000 / small facility
Maximin's main goal is to reduce the greatest amount of loss. The option with
the largest minimum payment is the one we choose. The Medium Facility is
selected using the Maximin criterion since its minimum payoff is the highest.
3. La Place (12.5 marks) - $41,000
La Place determines which option has the largest average reward by calculating
the expected value of each. The La Place criterion selects the Medium Facility
because it has the largest predicted value.
4. Minimax-regret( 12.5 marks) - $17,000
 The option with the lowest maximum regret is chosen by applying this rule,
which computes the regret for every cell in the payout table. The Minimax-regret
criterion selects the Medium Facility because it has the smallest maximum
regret.

Regret table

Small Facility Medium Facility Large Facility

Low demand $0 $5,000 $ 50,000
Medium demand $20,000 $0 $30,000
High demand $,38,000 $17,000 $0

Question 2
50 Points
Question 2:
A local KFC franchisee is evaluating the number of fried chickens to produce each day.
The following table shows the 4 alternatives, the states of nature and their payoffs

Daily Supply
40 50 60 70
Daily Demand 40 $80 $0 -$80 -$160
50 $80 $100 $20 -$60
60 $80 $100 $120 $40
70 $80 $100 $120 $140
Average 80 75 45 -10
 What would your decision be if the following rules are applied? (show your calculation)
5. Maximax (12.5 marks) - $140
The option with the lowest maximum regret is chosen by applying this rule,
which computes the regret for every cell in the payout table. The Minimax-regret
criterion selects the Medium Facility because it has the smallest maximum
regret.
6. Maximin (12.5 marks) _ $80
The option with the largest minimum payment is the one we choose. We select
the Daily Supply of 70 based on the Maximin criteria, as $40 is the maximum
minimum payout.
7. La Place (12.5 marks) – 40 Chicken / pay off 80
We determine each option's expected value and choose the one with the largest
average payoff.The Daily Supply of 70 is selected using the La Place criterion since
it has the highest predicted value.
8. Minimax-regret( 12.5 marks) -40 Chicken / (60)
We choose the option with the lowest maximum regret after calculating the
regret for every cell in the payout table. We choose the option with the lowest
maximum regret after calculating the regret for every cell in the payout table.

Regret Table

Daily Supply
40 50 60 70
Daily Demand 40 $0 $80 $160 $240
50 420 $0 $80 $160
60 $40 $20 $0 $80
70 $60 $40 $20 $0